[Contract] Clauses for Concern

Limitation of Liabilities

It’s pretty much right there in the name: the purpose of this clause is to limit potential damages that any one party will have to pay to an injured party. In most cases, this is a fixed monetary award that is commensurate with all or part of the contract amount/service fee.

Indemnity Clause

This clause is also commonly known as a limited indemnity clause. This language effectively allows one party to file suit against another for physical, emotional or monetary damages. The agreement usually contains two main parts:

• An agreement that each party must pay the amounts assessed in a settlement or award
• An agreement that the party that loses the lawsuit is responsible for paying the legal fees for the winning party

Hold Harmless Agreements

One of the most widely utilized contract clauses is the hold harmless agreement. The goal of this clause is to eliminate liability from one or both parties in the event of any injuries or damages. I mention “one or both parties” because these agreements can be unilateral (protects one party) or reciprocal (both parties waive liability). Some states don't recognize or severely limit the use of hold harmless agreements. Usually these involve matters that go against public interest. Fare-based travel usually involves a hold harmless agreement. Many courts do not stand by HHAs in these cases, since it could prevent families or individuals from bringing suit against the companies providing transportation in the event of an accident.

Acceptance or Waiver of Consequential Damages

Consequential damages are losses incurred by a nonbreaching party as a result of special circumstances that all parties were cognizant of prior to entering into a contract.

• Does not cover remote or speculative losses
• If choosing to accept consequential damages, it is extremely important that these are measurable, defined and specific

Provisions for Liquidated Damages

This is a predetermined amount that is negotiated during the formation of a contract that entitles an injured party to receive compensation for a defined breach of contract. In many cases, provisions for liquidated damages are preferred over acceptance of consequential damages because they are more clearly defined, understood and accepted by both parties.

Minimum Required Insurance Provisions

In contracts with vendors and partners, ensuring that you include minimum insurance requirements can protect your organization as much as the organization you're requiring to carry insurance. Coverages typically seen in insurance provisions include general liability coverage, professional liability coverage and cyber/privacy liability coverage.

Closing Remarks

Every contract is unique and should be treated as such. Evaluating the opportunity cost of including or excluding certain contract provisions is always a tricky thing. As mentioned before, having a law firm and risk management professional on hand to review or draft contracts on a case-by-case basis is paramount to managing the liability your organization takes on.

As always, please feel free to reach out to me on LinkedIn or AdvisoryCloud with questions or concerns you have and I would be happy to consult.

Disclaimer: The views and opinions made in this article are entirely my own. I do not make any warranties about the completeness, reliability and accuracy of this information. Any action taken by you is strictly at your own risk and I will not be liable for any losses and damages in connection with the use of the information contained herein.