/>iMany construction contracts include a provision that prohibits the parties from recovering “consequential” damages in the event of a breach. Sometimes parties will negotiate and agree to a waiver of consequential damages that identifies and describes what damages are considered consequential damages. For example, the parties may agree that prohibited consequential damages include such damages as lost profits, financing charges, or principal office expenses. In other cases, the parties will agree to a provision that does not define or describe what is considered a “consequential” damage. In the event of a dispute, the question then becomes what kinds of damages are considered unrecoverable consequential damages as opposed to recoverable direct damages.
A federal judge in Virginia addressed this issue last month in a case involving the alleged breach of a contract of architectural contract, Vista Holdings, LLC v. BSB Design, Inc., No. 7:24-cv-822, 2025 WL 1939590 (W.D. Va. July 15, 2025). The case involves the construction of apartments in Blacksburg, Virginia. The architectural contract at issue was based on AIA Document B108-2009 and included a general, undefined waiver of consequential damages. The owner filed suit against the architect alleging that its drawings showed a certain sanitary line in the wrong location, which caused significant delays and additional costs. The owner sought damages that included extended general conditions, loan interest and extension penalties, and lost rental value of the structures. In analyzing whether these damages are consequential or direct, the court provided this helpful summary of Virginia law on this common issue:
There are two broad categories of contract damages: direct damages and consequential damages. Direct damages flow naturally from a breach of contract; i.e., those that, in the ordinary course of human experience, can be expected to result from the breach, and are compensable. Consequential damages arise from the intervention of special circumstances not ordinarily predictable and are compensable only if it is determined that the special circumstances were within the contemplation of the parties to the contract.
Whether damages are direct or consequential is a question of law. This determination is not based upon the actual understanding and foreseeability of the parties in a particular situation, but rather, is an objective question of whether the damages flow ordinarily and expectedly from a breach of contract, are ordinarily predictable under construction industry standards, or can be expected to result from a breach of contract in the ordinary course of human experience.
The court went on to hold that whether an item of damage is direct or consequential is a question of law for the court to decide. The court required a better understanding of the facts before reaching a decision and therefore deferred its decision until after the close of discovery. A copy of the court’s decision is available here.
