South Carolina Court Enforces Limitation of Liability Clause  

April 11, 2013

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        An appellate court in South Carolina has enforced a limitation of liability clause in a residential home inspection contract.  Liability was limited to the amount paid for the inspection and report.  The home owner resisting enforcement claimed that the provision contravened South Carolina public policy and was unconscionable.  

        The court noted that in South Carolina home inspectors were not required to carry E&O insurance.  Why was that issue raised?  Because in New Jersey, where home inspectors are required to carry E&O insurance the NJ courts have held that the insurance requirement manifested the legislature's intent that homeowners have recourse against home inspectors for their negligence presumably at least for the amount of the required insurance.  Also important to the court was legislation that requires a seller to disclose defects and imposes liability for non disclosure,  But the court goes on to say:

    Even without this legislative policy, we would be reluctant to expand our judicially crafted public policy affording heightened protection to home purchasers. It is one thing to impose greater demands on the builder of a new home, who is in a position to know of the home's defects, and another to impose a similar standard on an inspector who makes only a brief survey of the home with the buyer's full knowledge of the limited service the inspector is offering. The transaction between a builder and a buyer for the sale of a home largely involves inherently unequal bargaining power . . . . [W]e created this narrow exception is the economic loss rule to apply solely in the residential home context.") (emphasis added). The General Assembly has imposed liability on the party with greatest access to information about the home's defects, where it most logically resides.

         On the issue of unconscionablility the court held  "In South Carolina, unconscionability is defined as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them." 

     And now for why I am actually reviewing this case.  Courts often mention the alarm industry when discussing a limitation of liability clause and justifying its enforcement.  Here is what this court had to say:

"Limitation of liability and exculpation clauses are routinely entered into. Moreover, they are commercially reasonable in at least some cases, since they permit the provider to offer the service at a lower price, in turn making the service available to people who otherwise would be unable to afford it.

See Texas case  Head v. U.S. Inspect DFW, Inc., where the court held that courts uphold limitations of liability in burglar and fire alarm system contracts and finding limitation of liability clause in home inspection contract commercially legitimate for the same reasons . We cannot say that a limitation of liability clause in a home inspection contract is so oppressive that no reasonable person would make it and no fair and honest person would accept it." (citations omitted)

     The decision in this case was by a panel of judges and not all agreed with the decision.  The majority however found it significant that the limitation of liability clause was not inconspicuous,  I have expressed how important it is for alarm contracts to be written in clear understandable language and in proper font size.  The Standard For Contracts all meet this criteria.  Get them at www.alarmcontracts.com