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S.C. Supreme Court Holds Limit of Liability Provision is Neither Unconscionable nor Against Public Policy

Written By: Logan Wells, Esq.

Collins and Lacy, PC

Columbia, South Carolina

Contractual limitation of a home inspector’s liability does not violate South Carolina public policy and, as a matter of law, is not unconscionable, according to a March 2013 opinion of the S.C. Supreme Court. Finding such limit of liability clauses are enforceable, the court specifically noted the lack of a requirement that home inspectors carry E&O insurance as evidence of South Carolina’s public policy.

In Gladden v. Boykin, in the course of purchasing a home, Mrs. Gladden entered into a contract with Palmetto Home Inspection Services, LLC (“Palmetto”) for a home inspection. The contract contained a limit of liability clause, limiting Palmetto’s liability to the amount of the home inspection fee. After Mrs. Gladden contacted Palmetto about certain conditions that were not included in the home inspection report, Palmetto returned the fee. The Gladdens subsequently sued, among others, Palmetto, alleging a cause of action for breach of contract for failing to conduct the inspection in a thorough and workmanlike manner and to report defective conditions. The Gladdens and Palmetto filed cross motions for summary judgment, each directed at the enforceability of the limit of liability provision. The trial court denied the Gladdens’ motion and granted Palmetto’s motion, finding the provision enforceable. On appeal, the Gladdens argued the limit of liability provision was not enforceable because (1) it contravened South Carolina public policy; and (2) it was unconscionable. The court disagreed.

Public Policy:  Courts must determine public policy by reference to legislative enactments whenever possible. Holding the limit of liability provision did not violate public policy, the court found the legislature had spoken on the issue of home inspections and liability for undisclosed defects in the sale of residential property. The court specifically noted that, unlike in New Jersey, in South Carolina, the general assembly did not require home inspectors to carry E&O insurance, distinguishing Gladden from Lucier v. Williams, 841 A.2d 907 (N.J. Super. Ct. App. Div. 2004), on which the Gladdens and the dissent heavily relied.[1][1] The court found this distinction particularly significant since the enforcement of a liability limit in the home inspection contract would conflict with the clear intent of the New Jersey legislature that purchasers have recourse to insurance coverage in the case of a home inspector’s negligence. The court further noted that although the general assembly declined to require such coverage, residential homeowners were not left without a remedy, citing the Residential Property Condition Disclosure Act, which imposes liability on a seller that knowingly withholds information regarding known defects.

Unconscionability:  Unconscionability is 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. Finding the terms of the limit of liability clause were not oppressive, the court noted that such clauses are commercially reasonable in some cases because they permit the provider to offer the service at a lower price, in turn making the service available to people who would otherwise be unable to afford it. The court also found that the evidence failed to support an inference that Mrs. Gladden lacked meaningful choice, noting her sophistication and the fact that she sought out the services of Palmetto, declining to employ a different home inspector she had interviewed. Accordingly, the court found the limit of liability provision enforceable, thereby affirming the trial court’s order granting summary judgment to Palmetto

[1][1] The Lucier court pointed to the requirement under New Jersey statutory law that home inspectors maintain E&O insurance and called this fact “[i]mportant to [its] analysis[.]”

For more information on Collins and Lacy, PC, please visit www.collinsandlacy.com or the International Society of Primerus Law Firms.

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