Whether you are a designer, developer, or other type of creative professional, keep this post handy next time you get stuck haggling over a limitation of liability clause.
Chances are you’ve probably seen a clause in your services agreement that reads something like this (this one taken from the AIGA Standard Form of Agreement for Design Services):
In all circumstances, the maximum liability of Designer, its directors, officers, employees, design agents and affiliates (“designer parties”), to Client for damages for any and all causes whatsoever, and Client’s maximum remedy, regardless of the form of action, whether in contract, tort or otherwise, shall be limited to the net profit of Designer’s fee.
This is a clunky example, but it basically means that Designer’s maximum liability to Client is capped at the profit Designer makes on the project. A simpler example might read:
Designer’s maximum liability to Client under this Agreement will not exceed the profit portion of Designer’s fee.
While straightforward, this clause is often a source of sticky negotiation. Consider these tips next time you are negotiating a limitation of liability clause:
- It is fair for the Client to ask that this be made reciprocal, meaning, that Designer couldn’t sue Client for more than the fee. You might make your standard form of agreement reciprocal just to avoid having to negotiate this point.
- Sometimes clients will object because it sounds like Designer isn’t standing behind its work, which is untrue. The reason for this clause is that the Designer can’t be responsible for the scale of Client’s business. If a Designer had to take responsibility for scale, fees would be enormous to compensate for that risk.
- Clients will often ask that the cap be set at the actual fee rather than the profit portion of the fee. In many cases I think this is a fair request.
- Clients will sometimes ask for the cap to be raised to a multiple of the fee, a specific dollar amount, or maybe to the extent of Designer’s applicable insurance. These are fair points for negotiation, but are not automatic giveaways. If you are getting a premium for your work, it is fair to consider increasing a cap. On the flip side, if you are doing work at a discount, the Client shouldn’t get other benefits like high liability caps.
- Clients will often ask that the cap not apply to claims of infringement or claims that Designer breached confidentiality. This is a fair request. Just make sure that your obligations regarding infringement are fair.
- I’ve seen Clients ask that there be no cap for intentional acts of Designer, personal injury claims, and the like. This is a fairly low risk in most design and development projects and a fair request by the Client.
Learn about more common provisions in our (ongoing) series, Anatomy of a Services Agreement.