Courts in most states will enforce limitation-of-liability provisions under the theory that parties should have the freedom to contract. The bad news is that most courts are skeptical of these provisions and will invalidate anything they decide is “unconscionable.” Nor is it an exaggeration to say that the stakes are potentially staggering. In 2011, one actuarial firm was held liable for $73 million in damages for “lost” pension contributions and investment earnings, in a suit brought by its client of 22 years. The firm did not have a limitation-of-liability provision in its contract, severely undercutting its argument that it never contemplated such exposure for its professional services, even in light of the modest annual fees it received.
Limitation-of-liability provisions are important but are helpful only to the extent they are enforceable. Fortunately, courts generally consider the factors discussed below when deciding whether to uphold such provisions. Carefully reviewing and implementing the five tips outlined here may help avoid that next $100 million malpractice suit altogether.