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MMS Briefs: Business law - Beware the lurking disclaimer clause

Indemnities and Disclaimers / Limitations of liability

The riskiest clauses in your contract with your supplier / contractor / landlord / tenant are the indemnity and limitation of liability clauses (often called a disclaimer). Nearly all contracts have these clauses.

What do those clauses do?

In the indemnity clause you promise to pay compensation to the other party in your contract, if something goes wrong under the contract and that other party suffers loss. Often the promise is very broad, and covers all sorts of disasters that are not your fault.

In the limitation of liability / disclaimer clause, it says that if the other party stuffs up, and you suffer loss, you promise you won’t sue that other party for the loss you suffered even if it is their fault.

That sounds horrible!

Yes the clauses are obnoxious and can be horribly unfair. They are a large source of financial and legal risk for many businesses.

Can I get rid of the clauses?

Yep. Just cross the clauses out (and initial) before signing the contract.

Is it really that simple?

Kind of. The catch is that many businesses will not sign a contract which has those clauses crossed out. What you need to do then is to negotiate the wording of the clauses so that you and the other party each take a fair amount of responsibility under the contract.

Will my insurance cover losses from these clauses?

Your public liability or professional indemnity insurers may cover your losses arising under these clauses, BUT you need to check this with your insurer. Insurers are reluctant to cover all losses under an indemnity clause, because they are then effectively insuring not only you, but also the party you have promised to indemnify.

Insurers also do not like to cover your losses if you have promised not to sue the other party to recover your loss – because the insurer then has no ability to recover its payout by going after the other party.

Moin Morris Schaefer are experienced negotiating indemnity and limitation of liability clauses and can help you with this and other contractual matters.

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