Damages, Apportionment, Limitation of Liability, and Indemnity in Construction and Commercial Cases

Tue, Mar 5th, 2024 | by Miles Mediation and Arbitration | Article | Social Share

By Roy Paul

In an earlier article, I summarized important procedural issues in Georgia construction arbitrations. In that piece, specific reference was made to situations where a non-signatory to a contract could be forced to arbitrate in Georgia. In this regard, it was emphasized that traditional principles of state contract law can come into play to allow a contract to be enforced by or against non-parties using concepts such as piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, and/or waiver and estoppel. See Lawson v. Life of the South Ins. Co., 648 F.3d 1166 (11^th Cir. 2011). In arbitrating or mediating construction and/or commercial cases, there are additional principles that govern how damages are to be apportioned or allocated among parties and non-parties and the extent to which any damage awards might be limited as to specific parties.

As discussed below, the distinction between tort and contract claims is of utmost significance. Punitive damages are not available for mere breach of contract. Absent a viable underlying tort, there generally can be no liability for civil conspiracy. See Mustaqeem-Graydon v. SunTrust Bank, 258 Ga. App. 200, 207, 573 S.E.2d 455 (2002).

In dispute resolution, it is critically important to have all the potentially responsible parties involved in any mediation or arbitration. There is often an attempt by one or more parties to attempt to shift attention and liability to other parties. There are usually parties that have greater resources than other parties and understanding how the risk of insolvency of a particular party will play out is important. In construction and commercial cases, the starting point may be to understand the contractual issues including, without limitation, the scope of any indemnity agreements or limitation of liability provisions, but that is not the end of the analysis.

If there are separate tort claims and allegations of concerted activity/civil conspiracy, the entire analysis can change. There may or may not be the opportunity to apportion damages. Any related right to contribution may or may not have real value depending on the solvency of the party against whom indemnity is to be sought. Even though there are corporations or other business entities involved in the transactions at issue, individuals may have personal liability if they are involved in any alleged tortious acts. In this regard, Georgia law has well established that the principal of a corporation or limited liability company (LLC) is personally liable if he or she takes part in the commission of a tort if he or she directs or cooperates in any tortious act. See Jamal v. Hussein, 237 Ga. App. 779, 785, 515 S.E.2d 407 (1999); Constr. Lender, Inc. v. Suttor, 228 Ga. App. 405, 407, 491 S.E.2d 853 (1997); Cherry v. Ward, 204 Ga. App. 833, 834, 420 S.E.2d 763 (1992); Smith v. Hawks, 182 Ga. App. 379, 384-85, 355 S.E.2d 669 (1987).

Put simply, complex construction and commercial cases have multiple moving parts and the issues outlined below can determine the proper assessment and allocation of risk when evaluating or arbitrating construction or commercial cases in Georgia.

Contractual Versus Tort Theories

The starting point for assessing what damages are available in a particular case is to understand the applicable theories of liability. In construction and commercial cases, there may be multiple causes of action sounding both in contract and in tort.

It is well-established that a single act or course of conduct may constitute not only a breach of contract but an independent tort claim as well. Northeast Plaza v. Northeast Enterprises, 305 Ga. App. 182, 191-92, 699 S.E.2d 410 (2010). Scrutiny must be given to whether a duty has been violated that exists independently from duties that are only based on contract. If there is only a breach of contractual duties, then punitive damages should not be in play and the allegedly injured party generally must seek any remedy in contract and not in tort. Potential application of the economic loss rule also must be considered. See General Electric Company v. Lowe’s Home Centers, 279 Ga. 77, 78, 608 S.E.2d 636 (2005); Kalpakchian v. Bank of America Corporation 832 F. Appx 579, 584 (11^th Cir. 2020). When there is a confidential relationship among contracting parties, a breach of fiduciary duty claim may give rise to an independent tort. See Wimpy v. Martin, 356 Ga. App. 55, 846 S.E.2d 230 (2020); OCGA § 23-2-58.

Apportionment of Damages and Contribution

There has been much recent discussion of apportionment of damages. The decision in Alston & Bird, LLP v. Hatcher Management Holding, LLC, 312 Ga. 350, 862 S.E.2d 295 (2021) came as a surprise to many practitioners in limiting the applicability of O.C.G.A. § 51-12-33 in single-defendant cases. The result was promptly changed on a going-forward basis by the 2022 amendment to O.C.G.A. § 51-12-33, made effective May 13, 2022, to make it clear that apportionment would, in fact, be allowed in single-defendant cases, but leaving cases arising before the effective date of the amendment subject to the decision in Hatcher.

The starting point for analysis of apportionment issues remains the language of O.C.G.A. § 51-12-33 as amended. In Federal Deposit Insurance Corporation v. Loudermilk, 305 Ga. 558, 826 S.E.2d 116 (2019) the Georgia Supreme Court answered the question of whether OCGA § 51-12-33 abrogates Georgia’s common-law rule imposing joint and several liability on tortfeasors who act in concert. The Georgia Supreme Court determined that the answer was “no” with an important caveat: concerted action survives the apportionment statute, but only insofar as it was traditionally understood at common law within the context of torts.

The court in Loudermilk emphasized that under OCGA § 51-12-33, the pertinent inquiry is whether fault is capable of division. When fault is divisible and the other requirements of OCGA § 51-12-33 are met, then the trier of fact “shall” apportion. If fault is indivisible, then the trier of fact cannot carry out the statute’s directive of awarding damages “according to the percentage of fault of each person” and the apportionment statute does not govern how damages are awarded. See OCGA § 51-12-33(b).

As noted by the court in Loudermilk, true concerted action is predicated on the idea that wrongdoers in pursuance of a common plan or design to commit a tortious act are equally liable, and that through “joint enterprise” and/or “mutual agency”, the act of one is the act of all. Where the fault of one person is legally imputed to another person who is part of the same joint enterprise, it cannot be said that there is a legal means of dividing fault “among the persons who are liable.” Under these circumstances, damages (if any) must be awarded jointly and severally despite the existence of the apportionment statute.

The court in Loudermilk went on to recognize that its reasoning was consistent with what is commonly called “civil conspiracy” under Georgia law, which appears to be the same or almost identical to common-law concerted action. The essential element of a civil conspiracy is a common design and the fact of conspiracy, if proved, makes any deed by one of the conspirators chargeable to all. All parties to a conspiracy are jointly and severally liable for damages occasioned by the unlawful combination and acts done by any one of the conspirators in furtherance of a common object become the acts of all.

The apportionment statute provides that when damages are apportioned under OCGA § 51-12-33 (b), those damages “shall not be subject to any right of contribution.” OCGA § 51-12-33 (b). Yet OCGA § 51-12-32 governs contribution and still must be given meaning. The divisible-fault requirement discussed in Loudermilk reconciles these two statutes. The apportionment statute applies when a fault is divisible. See OCGA § 51-12-33 (b). When fault is indivisible — including in instances of concerted action — damages are awarded under joint and several liability. And where joint and several liability applies, contribution still exists.

In summary, the Georgia Supreme Court in Loudermilk made it clear that OCGA § 51-12-33 did not abrogate Georgia’s common-law rule imposing joint and several liability on persons who act in concert. The court emphasized, however, that this holding encompasses only traditional concerted action, as it was understood at common law, for the basic reason that fault in such scenarios is not divisible. In a footnote, the Loudermilk court went on to observe that in addition to concerted action, there may exist other legal theories that preclude division of fault as a matter of law. The additional legal theories that might preclude division of fault as a matter of law have been fleshed out to some degree since Loudermilk.

For example, in Eliezer v. Mosley, 369 Ga. App. 102, 891 S.E.2d 555 (2023), the Court of Appeals of Georgia further analyzed apportionment of damages under principles of vicarious liability and respondent superior. In Mosley, a patient sued a dentist and his employer for dental negligence. The plaintiff sought to recover against the dental practice employer solely based on its status as employer of the dentist involved in the dental procedure under theories of vicarious liability and respondent superior. The court of appeals concluded that division of fault is not possible in cases predicated solely on the theory that one of the two named defendants is vicariously liable for the acts or omissions of the other defendant under the doctrine of respondent superior.

Indemnity

Following the enactment of the apportionment statute, Georgia law continued to recognize only two categories of indemnity: as created by contract, as between a surety and a debtor; and under the common law of vicarious liability, as between principals and agents. District Owners Association, Inc. v. AMEC Environmental & Infrastructure, Inc. 322 Ga. App. 713, 715-16, 747 S.E.2d 10 (2013). Specifically, if a person or entity is compelled to pay damages because of negligence imputed to him or it as a result of a tort committed by another, that party may maintain an action for indemnity against the party whose wrong has been imputed to the party seeking indemnity. Common-law indemnity based on the distinction between active and passive negligence no longer applies. ALR Oglethorpe, LLC v. Fidelity National Title Insurance, 361 Ga. App. 776, 787, 863 S.E.2d 568 (2021).

Limitation of Liability Issues

Contractual provisions severely restricting remedies act as exculpatory clauses and therefore should be explicit, prominent, clear, and unambiguous. Imaging Systems Intl. v. Magnetic Resonance Plus, 227 Ga. App. 641, 644-645, 490 S.E.2d 124 (1997). In determining whether a limitation of liability clause or an exculpatory clause is sufficiently prominent, courts may consider a number of factors, including whether the clause is contained in a separate paragraph; whether the clause has a separate heading; and whether the clause is distinguished by features such as font size. See Warren Averett, LLC v. Landcastle Acquisition Corporation, 349 Ga. App. 479, 825 S.E.2d 864 (2019); 2010-1 SFG Venture LLC v. Lee Bank & Trust Co., 332 Ga. App. 894, 898-900 775 S.E.2d 243 (2015); Parkside Center, LTD v. Chicagoland Vending, Inc., 250 Ga. App. 607, 611-12, 552 S.E.2d 557 (2001).

Georgia courts have made it clear that a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy, except when such an agreement is prohibited by statute. Lanier At McEver, L.P. v. Planners and Engineers Collaborative, Inc., 284 Ga. 204, 205-208, 663 S.E.2d 240 (2008). Significantly Georgia has an anti-indemnification statute that precludes some limitations of liability related to construction contracts. OCGA § 13-8-2(b) states:

(b) A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable. This subsection shall not affect any obligation under workers’ compensation or coverage or insurance specifically relating to workers’ compensation, nor shall this subsection apply to any requirement that one party to the contract purchase a project specific insurance policy, including an owner’s or contractor’s protective insurance, builder’s risk insurance, installation coverage, project management protective liability insurance, an owner controlled insurance policy, or a contractor controlled insurance policy. [Note that OCGA § 13-8-2(c) further restricts certain covenants, promises, agreements or understandings in or in connection with or collateral to a contract or agreement for engineering, architectural, or land surveying services.]

More generally, in cases involving tort claims, exculpatory clauses generally have been held not to relieve a party from liability for acts of gross negligence or willful or wanton conduct. See Colonial Properties Realty Limited Partnership v. Lowder Construction Company, Inc., 256 Ga. App. 106, 112, 567 S.E.2d 389 (2002).

Conclusion

Understanding the basic contractual relationships among all the relevant parties, including any viable contractual limitations of liability and/or indemnity provisions, is critical to analyzing commercial/construction disputes. Understanding whether there are additional tort theories that go beyond mere claims for breach of contract and how fault under any such tort claims is likely to be allocated is also critical. It is hoped that having a common framework for assessing these issues can foster resolution by giving all parties involved in the process the means accurately to assess the risk of each party.

About Roy Paul

Roy Paul is a mediator and arbitrator who has been practicing law in Savannah, Georgia since the summer of 1983, when he completed his clerkship with the Honorable Dudley H. Bowen, Jr., United States District Court for the Southern District of Georgia. He joined Bouhan, Williams & Levy (now Bouhan Falligant LLP) as an associate and was admitted as a partner in 1988. Roy subsequently joined Bart, Meyer & Company, LLP (now Meyer & Sayers, LLP) as a partner in 2010. While at Bouhan, Williams & Levy, he acquired experience in a number of areas. Roy’s practice focused on commercial litigation, but he also worked extensively in personal injury defense, construction law, and employment matters.