Drafting Enforceable Limitation of Liability Clauses …

1 Drafting Enforceable Limitation of Liability Clauses in Business Contracts Limiting Potential Damages and Avoiding Enforceability Pitfalls With Carefully Negotiated Provisions Today s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 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. TUESDAY, MARCH 3, 2015 Presenting a live 90-minute webinar with interactive Q&A Kenneth M. Gorenberg, Partner, Barnes & Thornburg, Chicago Steven M. Richman, Partner, Duane Morris, Princeton, Leslie J. Weiss, Partner, Barnes & Thornburg, Chicago Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection.

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3 You may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35. FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to Conference Materials in the middle of the left-hand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon. FOR LIVE EVENT ONLY Drafting Enforceable Limitation OF Liability Clauses IN BUSINESS CONTRACTS Leslie J.

4 Weiss 312-214-4864 Kenneth M. Gorenberg 312-214-5609 Steven M. Richman 856-874-4213 March 3, 2015 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 6 Overriding Theme Contract parties want to allocate risk. 7 NEGOTIATING AND Drafting LOL PROVISIONS 8 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.

5 9 Two Types of LOL Clauses to certain types of Liability in amount of Liability 10 Two Types of LOL Clauses 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 in amount of Liability placing a cap on Liability . Generally, the same exceptions apply. 11 Two Types of LOL Clauses 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 in amount of Liability Clear, conspicuous.

6 And related to contract Percentage of fees All fees Fees over a period of time Fixed dollar amount Amount covered by insurance 12 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 13 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) 14 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 15 Sample 1 A.

7 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.

8 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.

9 16 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.

10 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. 17 Sample 3 EXCEPT FOR THIRD PARTY CLAIMS COVERED UNDER THE INDEMNIFICATION PROVISIONS OF THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER CUSTOMER NOR PROVIDER SHALL BE LIABLE TO THE OTHER OR ANY OTHER PERSON FOR ANY INJURY TO OR LOSS OF GOODWILL, REPUTATION, BUSINESS, PRODUCTION, REVENUES, PROFITS, ANTICIPATED PROFITS, CONTRACTS OR OPPORTUNITIES (REGARDLESS OF HOW THESE ARE CLASSIFIED AS DAMAGES), OR FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, PUNITIVE OR ENHANCED DAMAGES WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT Liability , PRODUCT Liability OR OTHERWISE (INCLUDING THE ENTRY INTO, PERFORMANCE OR BREACH OF THIS AGREEMENT)