Contractual Limitation of Liability in Engineer / Survey Contract Upheld

Blaylock Grading Co., LLP v. Smith, 658 S.E.2d 680 (N.C. Ct. App. 2008)

In this case, a grading contractor sued a surveyor (who was also an engineer) for breach of contract and negligence regarding mistakes in surveying work which resulted in the contractor having to incur costs to import fill to raise the elevation of the site.  The contract between the contractor and surveyor contained a provision limiting the surveyor’s liability to $50,000.  The surveyor unsuccessfully moved for partial summary judgment based on the limit of liability.  Following a jury verdict against the surveyor for $574,714, the surveyor moved for judgment notwithstanding the verdict, which the trial court denied, ruling that the limit of liability was void as against public policy.  The North Carolina Court of Appeals reversed the trial court, holding that the limitation of liability was valid and enforceable.

Blaylock Grading Company, LLP, a grading contractor, entered into a contract with Neil Smith and Neil Smith Engineering, Inc., pursuant to which Smith would provide land surveying services for Blaylock regarding a military housing project on which Blaylock was working.  The contract contained a “Risk Allocation” provision which limited Smith’s liability to the greater of $50,000 or the Defendants’ fee, or such other amount specified in the contract ($50,000 ended up being the relevant amount).  This provision applied, without limitation, to liability for negligence, errors, omissions, strict liability, breach of contract, or breach of warranty.  Pursuant to the contract, Smith surveyed the site to determine the extent of grading needed by Blaylock.  Smith negligently set the site benchmarks 1.66 to 1.7 feet higher than specified in the design plans.  Smith’s error required Blaylock to import substantial amounts of compacted fill to raise the overall elevation of the site.  Blaylock filed suit against Smith alleging breach of contract and negligence.  At trial, a jury found in favor of Blaylock.  Smith moved for judgment not withstanding the verdict which was denied upon a finding that the limit of liability was void as against public policy.

The Court of Appeals reversed, holding that North Carolina law allows a professional engineer/land surveyor to limit its liability when contracting with another party.  Citing existing North Carolina law, the court reasoned that the limit of liability provision was valid, as both parties were sophisticated professionals that were capable of conducting an arms length business transaction.

The court also rejected the trial court’s determination that the provision was void on public policy grounds.  The trial court reasoned that land surveying services are extensively regulated, and thus fall within the “public service” exception to the usual rule that contractual limitations of liability are valid.  The Court of Appeals disagreed, noting that just because land surveyors and engineers are regulated by the state and are required to be licensed does not convert these professions into public services.  Second, the court noted that when a breach of contract between two parties involves only economic loss the health and safety of the public are not implicated.

Lastly, the court held that North Carolina’s anti-indemnity statute, N.C. Gen. Stat. § 22B-1, deals with indemnity agreements and therefore was not applicable to this case.