Presenting a live 90-minute webinar with interactive Q&A Drafting Enforceable Limitation of Liability Clauses in Business Contracts Limiting Potential Damages and Avoiding Enforceability Pitfalls With Carefully Negotiated Provisions TUESDAY, MARCH 3, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Kenneth M. Gorenberg, Partner, Barnes & Thornburg , Chicago Steven M. Richman, Partner, Duane Morris , Princeton, N.J. Leslie J. Weiss, Partner, Barnes & Thornburg , Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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DRAFTING ENFORCEABLE LIMITATION OF LIABILITY CLAUSES IN BUSINESS CONTRACTS March 3, 2015 Leslie J. Weiss 312-214-4864 leslie.weiss@btlaw.com Kenneth M. Gorenberg 312-214-5609 kgorenberg@btlaw.com Steven M. Richman 856-874-4213 smrichman@duanemorris.com
6 Our Plan for Today • Negotiation and drafting from a transactional lawyer’s perspective – Leslie Weiss • Enforceability issues – Ken Gorenberg • Interplay with indemnification provisions – Steve Richman • Q&A
7 Overriding Theme Contract parties want to allocate risk.
8 NEGOTIATING AND DRAFTING LOL PROVISIONS
9 Limitation of Liability - General Limitation of liability clauses are important tools businesses use to limit and allocate risks in commercial relationships. Lawyers should always be aware of the potential liability their clients are undertaking and ways to reduce their clients’ exposure. Limiting liability can be as important as negotiating price. However, price negotiation is generally a client function, while much of the negotiation surrounding limitation of liability is done by the attorneys.
10 Two Types of LOL Clauses 1. Limitation to certain types of liability 2. Limitation in amount of liability
11 Two Types of LOL Clauses 1. Limitation to certain types of liability • Direct damages – Goal is to exclude all other types of liability. • Exceptions • Third-party claims under indemnification provisions • Breach of confidentiality (and other restrictive covenants) • Gross negligence, willful misconduct, or fraud 2. Limitation in amount of liability – placing a cap on liability. • Generally, the same exceptions apply.
12 Two Types of LOL Clauses 1. Limitation to certain types of liability • Direct damages • Exclude • Consequential or incidental damages, including lost profits and income, lost savings, loss of facilities and core equipment, loss of goodwill, damage to reputation, and loss of opportunities. • Indirect and special damages, including business interruption. • Punitive damages 2. Limitation in amount of liability • Clear, conspicuous, and related to contract • Percentage of fees • All fees • Fees over a period of time • Fixed dollar amount • Amount covered by insurance
13 How and where to use LOL • Reduce and define risk • Allocate risk • Makes a deal commercially viable for both parties • Relates to the price • Provision of services • Business to business – presumed to be more sophisticated than consumer contracts • Business to consumer – limitations of certain types of liability are considered unconscionable when it comes to consumers Certain Professionals Cannot Limit Liability • Attorneys • Physicians
14 Challenges in negotiation • Caps • New service or new provider • Infringement – generally makes the service contracted for unusable • Security/Privacy Issues • Taxes/Withholding (primarily an issue in international contracts)
15 Drafting tips • Clear, unequivocal, conspicuous • CAPS or bold • No blanks to fill in (do not use a form) • Not unconscionable • Probably exclude gross negligence, willful misconduct, and fraud • Probably exclude third-party claims addressed separately in indemnification provisions
16 Sample 1 A. YOU AGREE THAT WE WILL NOT BE LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES (EVEN IF WE HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM, RELATING TO OR CONNECTED WITH: (A) THE USE OR INABILITY TO USE OUR SERVICE, (B) THE COST OF REPLACEMENT OF ANY GOODS, SERVICES OR INFORMATION PURCHASED OR OBTAINED AS A RESULT OF ANY INFORMATION OBTAINED FROM OR TRANSACTIONS ENTERED INTO THROUGH OR FROM OUR SERVICE, (C) DISCLOSURE OF, UNAUTHORIZED ACCESS TO OR ALTERATION OF YOUR CONTENT, (D) STATEMENTS, CONDUCT OR OMISSIONS OF ANY SERVICE PROVIDERS OR OTHER THIRD PARTY ON OUR SERVICE, (E) ACTIONS OR INACTIONS OF OTHER USERS OF OUR SITE OR OUR SERVICE OR ANY OTHER THIRD PARTIES FOR ANY REASON, OR (F) ANY OTHER MATTER ARISING FROM, RELATING TO OR CONNECTED WITH OUR SERVICE OR THESE TERMS. B. WE WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMING UNDER THESE TERMS WHERE SUCH FAILURE OR DELAY IS DUE TO CAUSES BEYOND OUR REASONABLE CONTROL, INCLUDING NATURAL CATASTROPHES, GOVERNMENTAL ACTS OR OMISSIONS, LAWS OR REGULATIONS, TERRORISM, LABOR STRIKES OR DIFFICULTIES, COMMUNICATIONS SYSTEMS BREAKDOWNS, HARDWARE OR SOFTWARE FAILURES, TRANSPORTATION STOPPAGES OR SLOWDOWNS OR THE INABILITY TO PROCURE SUPPLIES OR MATERIALS. C. IN NO EVENT WILL OUR AGGREGATE LIABILITY TO YOU OR ANY THIRD PARTY IN ANY MATTER ARISING FROM, RELATING TO OR CONNECTED WITH OUR SERVICE OR THESE TERMS EXCEED THE SUM OF ONE HUNDRED ($100) DOLLARS. D. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF CERTAIN WARRANTIES OR THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES. ACCORDINGLY, SOME OF THE LIMITATIONS OF THE FOREGOING SECTIONS MAY NOT APPLY TO YOU.
17 Sample 2 D. Indirect and Consequential Damages: i. Provider waives and releases all claims against Customer for indirect, consequential or punitive damages directly or indirectly arising out of this Agreement or the Work regardless whether caused or contributed to by the sole, joint or concurrent negligence, strict liability, preexisting condition, or any other fault of Customer. As used in this Agreement, “indirect damages” or “consequential damages” includes, without limitation, loss of revenue, profit or use of capital, production delays, loss of product, reservoir loss or damage, losses resulting from failure to meet deadlines and downtime of facilities, vessels or aircraft. ii. Customer waives and releases all claims against Provider for indirect, consequential or punitive damages directly or indirectly arising out of this Agreement or the Work regardless whether caused or contributed to by the sole, joint or concurrent negligence, strict liability, preexisting condition, or any other fault of Provider. As used in this Agreement, “indirect damages” or “consequential damages” includes, without limitation, loss of revenue, profit or use of capital, production delays, loss of product, reservoir loss or damage, losses resulting from failure to meet deadlines and downtime of facilities, vessels or aircraft. E. PROVIDER’S AGGREGATE LIABILITY UNDER THIS AGREEMENT OR OTHERWISE IS LIMITED TO THE COVERAGE ACTUALLY AFFORDED BY PROVIDER’S INSURANCE POLICY, SUMMARY OF WHICH IS ATTACHED HERETO AS APPENDIX A.
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