Something to Hang Your Hat On… (Limitation of Liability clauses) (law note)

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hat rackIn the past on this blog, I have pointed out the benefits of Limitations of Liability clauses.  These are the clauses that state that the most damages that your Firm can be responsible for is capped at a certain dollar amount or your contracted fee. 

Do you have a limitations of liability clause in your professional services contract?  You should.  Best practice would be to have such a clause that limits damages against you to a set amount.  For example:

Engineer’s liability to Client for any and all injuries, claims, losses, expenses, damages or claim expenses arising out of this agreement, from any cause or causes, shall not exceed the total amount of $50,000 or the amount of Engineer’s fee, whichever is greater.

While best practice is to have such a provision, it is not always enforced.  In a case arising out of the Western District of North Carolina, the court noted that such provisions will not be enforced where the result would be unconscionable and “elicit a profound sense of injustice.” See  Performance Sales & Mktg., LLC v. Lowe’s Companies, Inc.,2010 WL 2294323 (W.D.N.C. June 4, 2010).

What does this mean in practical terms?  It means that you should endeavor to include a limitation of liability clause, but don’t necessarily think that if you have that you’ve capped your risk.  A court can always decide that the clause is unconscionable.  But, such a limitation is one more thing to “hang your hat on” if and when you find yourself staring down the barrel of litigation*.

* If, however, you are facing litigation, make sure you sign up for regular blog updates.  Starting next week, I am writing a new series on the anatomy of a construction lawsuit, so stick around!

Photo:  (c) BabbNet via CC.