Lessons on Engineering Expertise and Contract Language: SAMS Hotel Group, LLC v. Environs, Inc.
A recent federal court case provides several good lessons for engineers practicing in Indiana. SAMS Hotel Group, LLC v. Environs, Inc. involved the design and construction of a Homewood Suites Hotel in Fort Wayne, Indiana. Structural design deficiencies in the foundation and shear wall supports led the Allen County Building Department to order the demolition of the structure. The loss resulted in $4.2 million in damages to the hotel developer.
As the architect of record, Environs performed not only the architectural design but also the structural engineering on the project. The registered architect stamped the structural engineering plans, but was not a registered professional engineer. The trial court held that Environs breached its professional standard of care by not employing a registered structural engineer to perform these tasks. The court also found fault for the lack of timely inspections during the project by Environs.
Fortunately for Environs, its contract with SAMS contained a limitation of liability clause:
“The Owner agrees that to the fullest extent permitted by law, Environs/Architects/Planners, Inc. total liability to the Owner shall not exceed the amount of the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contract, or breach of warranty.”
Environs’ lump sum contract with SAMS was for $70,000. The issue at the 7th Circuit Court of Appeals was whether this limitation of liability was binding on the parties. The court ruled that the parties were sophisticated commercial entities that knew the risks and freely bargained for the terms of the contract, including this limitation of liability clause. Thus, Environs’ total liability for the $4.2 million in damages was limited to $70,000.
This case provides good lessons both on the undertaking of work within one’s area of expertise and with the importance of the contract language employed between consultants and their clients.
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