Wearing my LegalSifter-advisor hat, I’ve been looking at what people try to cover in limitation-of-liability provisions—in other words, what they won’t be responsible for. Here’s what I’ve come up with in half an hour of rooting around on EDGAR:
- Consequential damages
- Special damages
- Direct damages
- General damages
- Indirect damages
- Incidental damages
- Punitive damages
- Exemplary damages
- Loss of profits
- Collateral damages
- Delay damages
- Loss of anticipated revenues
- Loss of savings
- Loss of goodwill
- Loss of data
- Loss by reason of cost of capital
- Loss of use
- Loss of production
- Loss of contracts
- Increased operating costs
- Loss of business reputation
- Lost opportunities
- Loss of use of equipment
- Loss by reason of damage to equipment
- Loss by reason of personal injury
- Loss by reason of property damage
- Substitute goods
- Substitute service
- Substitute facilities
- Downtime costs
- Claims of customers
You can expect any given limitation-of-liability provision to contain a handful of items on this list. Usually it will be a mixed bag, containing items that refer to how the impact of losses can be characterized (for example, consequential damages) and items that refer to the cause of losses (for example, damage to equipment). (Beware the interplay between consequential damages and lost profits; see this 2014 blog post.)
One routinely finds glitches in such lists. For example, referring to both consequential damages and special damages: they’re synonyms. Or excluding both direct and indirect damages: that excludes everything.
And some of these items have to be made up. For example, collateral damages: someone’s been watching too many bad movies.
But beyond that, there’s the sheer number, obscurity, and apparent randomness of attempted exclusions you can expect to find in any given provision. It smacks of negotiation theater—lawyers dickering over largely meaningless distinctions so as to appear to add value. If you ask a given contracts person to explain why they’ve included an item in the litany and how they expect it to play out, expect a lot of hemming and hawing.
I say stop the BS. Accept that you’ll be on the hook for whatever damages you’re reasonably responsible for. Limit your risk by negotiating a cap. End of story. I discuss that in MSCD and in this 2010 blog post.
If anyone thinks some items on this list (aside from obvious ones like consequential damages) are worth paying attention to, I’d be happy to hear it.
