In the July 2025 case of Orlando Health, Inc. v. HKS Architects, Inc.,
No. 6:24-cv-693-JA-LHP, 2025 U.S. Dist. LEXIS 132392, WL 1919349 (M.D. Fla. July 11, 2025), the court held that building repairs made necessary by design failures were recoverable as direct damages and that recovery was not barred by the waiver of consequential damages provision in the agreement between the owner and designer.
Background of the Case
Orlando Health engaged HKS Architects, Inc. (the "Architect") to
design a new six-story hospital and related facilities. Under the contract, the
Architect served as the architect of record and was responsible for planning,
architectural, and engineering services, including structural engineering. The
Architect subcontracted the structural engineering work to BBM Structural Engineers,
Inc. (the "Engineer").
The agreement between Orlando Health and the Architect included a mutual waiver of consequential damages for any claims or disputes arising out of or related to the contract.
Construction commenced, but soon after, multiple structural failures were discovered. These failures were traced to errors and omissions in the structural engineering plans. As a result, corrective measures were necessary, including demolition and reconstruction, leading to substantial additional costs.
Orlando Health filed a lawsuit against the Architect and Engineer to recover the costs incurred for these corrective actions, alleging that the design deficiencies constituted a material breach of contract and that the Architect failed to meet the required standard of care.
In response, both the Architect and Engineer argued that the
damages sought by Orlando Health were barred by the contractual waiver of
consequential damages, relying in part on a recent Florida court decision addressing
the recovery of such damages against design professionals.
The contract did not define the term "consequential damages." In the words of the court, "the parties now look to the Court to fill in this definitional gap for them."
The Court's Analysis
Among other authority, the court looked to Black's Law Dictionary (12th ed. 2024) as one of the starting points to define consequential damages, finding the term defined as "[l]osses that do not flow directly and immediately from an injurious act but that result indirectly from the act," noting the most common form of consequential damages is lost profits.
The court also referred to case law for a definition of consequential damages. The court cited a definition that "consequential damages" are damages that "do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting."
The Architect and Engineer relied heavily on a recent Florida
case, Keystone Airpark Auth. v.
Pipeline Contractors, Inc., 266 So. 3d 1219 (Fla. Dist. Ct. App.
2019). This opinion addressed whether damages could be recovered by an owner from a
design professional where the parties' contract contained a waiver of consequential
damages. This opinion seems to have caused some confusion over what meets the
definition of consequential damages when a claim is made against a design
professional.
In the Keystone case, the owner
sought damages, resulting from defective work by a contractor, from an engineering
firm, resulting in prematurely deteriorating slabs and taxiways. The contractor was
engaged under a separate contract with the owner.
The engineering firm in the Keystone case contracted with the owner to "inspect, monitor, and observe"
the work of the contractor who performed the defective work. The Keystone court concluded that a claim against an
engineering firm arising from the contractor's defective work constituted
consequential damages. The determinative factor was what work the engineering firm
was engaged to perform.
The Keystone court reasoned that
the damages claimed arose from the defective work of the contractor performed under
a separate contract, and those damages would be considered a consequence of the
engineer's failure to inspect, monitor, and observe. As Black's Law Dictionary said, the losses "do not
flow directly and immediately from an injurious act but that result indirectly from
the act."
In Keystone, the damage resulted
directly from defective work by the contractor. The failure of the engineer to
monitor the contractor's work to catch the defective work was secondary. As a
result, because the owner-engineer contract in Keystone waived consequential damages, the Florida Court of Appeals in Keystone concluded the owner was attempting to
recover "consequential damages"—as opposed to direct damages—from the engineer,
which the parties' contract barred.
Reliance on the Keystone opinion
in the Orlando Health case was misplaced,
according to the Orlando Health court. Though the
claim in Keystone and Orlando Health both arose from a design
professional's services, the answer to the questions requires a deeper dig. In Orlando Health, the structural failures were the
direct result of the services. The waiver of consequential damages clause had no
application.
The costs of remediation and repair did not "result indirectly
from" the Architect's plans, nor from "dealings with third parties" in the
traditional sense, giving rise to losses such as lost profits, or alternatively, the
causative link described by the Keystone case.
The court found that the costs to repair and remediate were the "direct, natural, logical, and necessary consequences of" the Architect's deficient plans. Therefore, the recovery of these costs was not barred by the consequential damages waiver.
Takeaways
One consistent challenge for lawyers and their construction clients is the lack of consensus on what constitutes consequential damages. Aside from commonly recognized categories such as lost profits, the classification of damages as "consequential" versus "direct" can vary greatly depending on the specific project, contract language, and parties involved.
While it may be impossible to achieve absolute certainty when addressing waivers of consequential damages in contracts, you can take steps to minimize risk and ambiguity.
Draft the waiver clause as clearly and specifically as possible. Define, with reference to the particular project, what the parties agree are consequential damages versus direct damages. Clearly articulating these definitions can help avoid leaving it to a court to interpret the parties' intentions. However, be aware that listing specific types of consequential damages carries the risk of inadvertently omitting a category, which a court may then interpret as intentionally excluded from the waiver.
Carefully consider the scope of services and the nature of potential damages. Analyze which damages would flow directly from a failure to perform, as opposed to those that might arise indirectly for this particular owner on this particular project. Tailoring the contract language to reflect this distinction can help clarify the parties' expectations and reduce the likelihood of disputes.
By taking these steps, parties can reduce uncertainty and better manage the risks associated with waivers of consequential damages in their contracts.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
In the July 2025 case of Orlando Health, Inc. v. HKS Architects, Inc., No. 6:24-cv-693-JA-LHP, 2025 U.S. Dist. LEXIS 132392, WL 1919349 (M.D. Fla. July 11, 2025), the court held that building repairs made necessary by design failures were recoverable as direct damages and that recovery was not barred by the waiver of consequential damages provision in the agreement between the owner and designer.
Background of the Case
Orlando Health engaged HKS Architects, Inc. (the "Architect") to design a new six-story hospital and related facilities. Under the contract, the Architect served as the architect of record and was responsible for planning, architectural, and engineering services, including structural engineering. The Architect subcontracted the structural engineering work to BBM Structural Engineers, Inc. (the "Engineer").
The agreement between Orlando Health and the Architect included a mutual waiver of consequential damages for any claims or disputes arising out of or related to the contract.
Construction commenced, but soon after, multiple structural failures were discovered. These failures were traced to errors and omissions in the structural engineering plans. As a result, corrective measures were necessary, including demolition and reconstruction, leading to substantial additional costs.
Orlando Health filed a lawsuit against the Architect and Engineer to recover the costs incurred for these corrective actions, alleging that the design deficiencies constituted a material breach of contract and that the Architect failed to meet the required standard of care.
In response, both the Architect and Engineer argued that the damages sought by Orlando Health were barred by the contractual waiver of consequential damages, relying in part on a recent Florida court decision addressing the recovery of such damages against design professionals.
The contract did not define the term "consequential damages." In the words of the court, "the parties now look to the Court to fill in this definitional gap for them."
The Court's Analysis
Among other authority, the court looked to Black's Law Dictionary (12th ed. 2024) as one of the starting points to define consequential damages, finding the term defined as "[l]osses that do not flow directly and immediately from an injurious act but that result indirectly from the act," noting the most common form of consequential damages is lost profits.
The court also referred to case law for a definition of consequential damages. The court cited a definition that "consequential damages" are damages that "do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting."
The Architect and Engineer relied heavily on a recent Florida case, Keystone Airpark Auth. v. Pipeline Contractors, Inc., 266 So. 3d 1219 (Fla. Dist. Ct. App. 2019). This opinion addressed whether damages could be recovered by an owner from a design professional where the parties' contract contained a waiver of consequential damages. This opinion seems to have caused some confusion over what meets the definition of consequential damages when a claim is made against a design professional.
In the Keystone case, the owner sought damages, resulting from defective work by a contractor, from an engineering firm, resulting in prematurely deteriorating slabs and taxiways. The contractor was engaged under a separate contract with the owner.
The engineering firm in the Keystone case contracted with the owner to "inspect, monitor, and observe" the work of the contractor who performed the defective work. The Keystone court concluded that a claim against an engineering firm arising from the contractor's defective work constituted consequential damages. The determinative factor was what work the engineering firm was engaged to perform.
The Keystone court reasoned that the damages claimed arose from the defective work of the contractor performed under a separate contract, and those damages would be considered a consequence of the engineer's failure to inspect, monitor, and observe. As Black's Law Dictionary said, the losses "do not flow directly and immediately from an injurious act but that result indirectly from the act."
In Keystone, the damage resulted directly from defective work by the contractor. The failure of the engineer to monitor the contractor's work to catch the defective work was secondary. As a result, because the owner-engineer contract in Keystone waived consequential damages, the Florida Court of Appeals in Keystone concluded the owner was attempting to recover "consequential damages"—as opposed to direct damages—from the engineer, which the parties' contract barred.
Reliance on the Keystone opinion in the Orlando Health case was misplaced, according to the Orlando Health court. Though the claim in Keystone and Orlando Health both arose from a design professional's services, the answer to the questions requires a deeper dig. In Orlando Health, the structural failures were the direct result of the services. The waiver of consequential damages clause had no application.
The costs of remediation and repair did not "result indirectly from" the Architect's plans, nor from "dealings with third parties" in the traditional sense, giving rise to losses such as lost profits, or alternatively, the causative link described by the Keystone case.
The court found that the costs to repair and remediate were the "direct, natural, logical, and necessary consequences of" the Architect's deficient plans. Therefore, the recovery of these costs was not barred by the consequential damages waiver.
Takeaways
One consistent challenge for lawyers and their construction clients is the lack of consensus on what constitutes consequential damages. Aside from commonly recognized categories such as lost profits, the classification of damages as "consequential" versus "direct" can vary greatly depending on the specific project, contract language, and parties involved.
While it may be impossible to achieve absolute certainty when addressing waivers of consequential damages in contracts, you can take steps to minimize risk and ambiguity.
By taking these steps, parties can reduce uncertainty and better manage the risks associated with waivers of consequential damages in their contracts.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.