Plano Litigation Attorney Richard L Armstrong of Armstrong the Law Firm discusses how to inexpensively limit your liability by the use of contract provisions.
I would never dream of taking away from my colleagues’ insurance business. Insurance is certainly necessary to some extent. And, after all, insurance is what built America…at least the visible part comprised of the sky lines of our large cities. But let me pose a provocative question: “Isn’t the best insurance that which deters a claim to begin with?” The cheapest insurance, it seems to me, is one that never has to be used (meaning claims are low). In that spirit, isn’t it just possible that a properly drafted contract for products or services can deter a suit-prone would-be claimant from stirring up trouble? My experience suggests that such is exactly the case. Yet, so many businesses who ought to know better neglect this simple but crucial truth. In addition, even the best insurance doesn’t cover all claims, and no insurance of which I am aware covers straight breaches of contract. Accordingly, this month we offer some practical tips for limiting liability through contractual provisions. Space being limited, I will set forth in Plain English some clauses that are in common use:
* Exculpatory clauses and releases: “It’s not my fault if you’re not happy.”
* Force majeure clauses: “It wasn’t my fault - it was fate.”
* Disclaimers: “You’d have to be crazy to listen to me.”
* Merger clauses, anti-amendment and waiver provisions: “I don’t care what I said, if it ain’t in the contract, it doesn’t exist.”
* Limitation of Actions: “Tough luck–you only had 48 hours to sue me!”
* Liquidated Damages: “O.K. So it’s my fault. Here’s a quarter as payment in full of the 19 cents we agreed would cover your liquidated damages. Keep the change.”
* Indemnification: “It may be my fault, but you’re the one who’s going to pay.”
Exculpatory clauses are in wide use where the value paid for the service is relatively low compared to the potential liability. Examples include the language printed on the back of your ticket at a parking garage, or on your receipt from Kodak for pictures developed (before digital!). They are generally upheld unless gross negligence or intentional acts (like fraud) are engaged in by the business.
Likewise, force majeure clauses will be given effect but note that the devil is in the details. It is best to list what is considered an “Act of God”, governmental regulation,or the like, rather than leaving it to the imagination.
We’re all pretty familiar with disclaimers of implied warranties because TO BE EFFECTIVE THEY MUST BE CONSPICUOUSLY PRINTED, LIKE THIS. They are commonly used to waive the implied warranty of merchantability and fitness for a particular purpose. And they are necessary, and quite effective in sales of products. Less frequent, but every bit as effective are waivers like “AS IS,” and “AS IS, WHERE IS” or “WITH ALL FAULTS.” Such waivers must be carefully drafted when dealing with consumer products, because consumers are protected by certain statutes (notably, the Texas Consumer Protection Deceptive Trade Practices Act), concerning waiver of warranties.
These are just a few examples, but there are many more. Suffice it to say that a properly drafted contract is an invaluable way to limit liability, without a recurring insurance premium. Should you wind up in court or arbitration, your business litigation attorney, including those at Armstrong The Law Firm, can achieve better results with a contract that has been properly drafted using the above principles. Ask your business attorney.
[Quotes furnished by Glen J. Hettinger, Fulbright & Jaworski, LLP, Limitation of Liability Through Contractual Provisions]