Thursday, January 4, 2007

Limitations of Liability in Contracts

In practice, there is an "implicit limitation of liability" clause is most contracts--the insurance requirements. For most contractors, regardless of what happens, the insurance limits are the most you're (maybe) going to get out of them in the event something really bad happens... . One of the attractive (and annoying) qualities of companies is that they're easy to form and equally easy to disband. And, corporate laws largely insulate the owners from the corporation's acts.
If all companies were honest, financially solid, and existed indefinitely, there would be little need for insurance (or surety, for that matter). We could rely on indemnification.
Explicit limitation of liability clauses in contracts, for examples, standard architects' wording or small, specialty software vendors' wording, is often easy to get around. Some of these clauses are harder to modify (from my perspective, not even worth exploring), for example, a common one from MS Windows is "...Except for any refund elected by Microsoft, YOU ARE NOT ENTITLED TO ANY DAMAGES, INCLUDING BUT NOT LIMITED TO CONSEQUENTIAL DAMAGES, if the Software does not meet Microsoft's Limited Warranty, and, to the maximum extent allowed by applicable law, even if any remedy fails of its essential purpose...."

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