Limitation Of Liability

What Is Limited Liability?

Are business issues ever truly divisible from legal issues? Many sales people itching to get a contract signed have suggested that my job as the lawyer is merely to advise a company on the “legal issues” in an agreement. Put another way, they want me to see no evil in the provisions they have deemed “business issues” and restrict my review to isolated “legal matters”. This is difficult because business and legal issues are often intertwined (and I am not a girl who can just close my eyes and pretend not to see glaring issues).

For instance, a limitation of liability clause, sometimes a contentious issue in a contract, can be classified as both a business and a legal issue. A limitation of liability clause sets out the maximum financial responsibility a party will incur if a breach of contract occurs. Properly drafted, and where enforceable, it provides protection and is useful for evaluating project risk. Typically, neither party is liable beyond the contract price, and neither should bear responsibility for damages not directly related to the breach. Of course, there are some items that should be excluded from the limitation of liability. Indemnification, or protection from third party claims, is typically excepted out of a limitation of liability clause, and often breaches of representations and warranties are, too.

Because a limitation of liability clause involves dollar figures, some business people view it purely as a business issue, a deal point to be negotiated and mentioned in the contract. Surely, the ultimate decision as to how much liability to bear is a business risk to be determined by the responsible party. However, the effect of the clause, and particularly its relationship to an indemnification or warranty section, needs to be viewed in the context of the entire contract and seen in light of both the business and the legal consequences of the language.

Commercial General Liability – Who is an insured?

  1. Named Insureds
  2. Individual including the spouse. As an individual you are covered for the conduct of any business of which you are the sole owner.
  3. Partnership or Joint Venture. Includes partners, members and their spouses. Coverage is limited to the conduct of your business.
  4. Limited Liability Company. Includes members and managers. Coverage for members is limited to the conduct of their business and coverage for managers is limited in respect to their duties only.
  5. Includes executive officers, directors and stockholders. For Executive officers and directors, coverage is limited to their duties. For stockholders, coverage is limited to their liability as stockholders only.
  6. Includes trustees. Coverage is limited to their duties as trustees only.
  7. Others
  8. Employees and volunteer workers, other than executive officers of corporation and managers of Limited Liability Company. Coverage is limited to acts within the scope of their employment or while performing duties related to the conduct of your business.
  9. Persons other than employees and volunteer workers. Coverage is limited to while acting as your real estate manager.
  10. Any person with temporary custody of your property if you die. Coverage is limited to liability arising out of maintenance or use of that property.
  11. Your legal representative if you die. Coverage is limited in respect to their



No рerson or organization is an insured with respect to the сonduсt of anу current or рast рartnershiр, joint venture or limited liability сomрanу not shown as a Named Insured in the Declarations of the policy.

Note that emрloуees, volunteer workers, рersons other than emрloуees are defined in your рoliсу language and should be reviewed with уour agent.


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