Liability Limits: Good Legal Advice, Bad Professional Practice

June 3, 2016

In my day job, I am a provider of professional services; in my other roles, I also frequently am a consumer of professional services.  As a consumer, I have noticed a disturbing trend in agreements for professional services.  More and more professionals are inserting standard clauses in their agreements with consumers prospectively limiting their liability for negligence and other mistakes or misconduct.

These limitations take various forms, but recently the trend seems to be to limit the professional’s potential liability to no more than the total fee they were paid by the consumer.  Assuming it is consistent with one’s professional obligations and is enforceable, these clauses allow a professional to commit negligence or other misconduct, potentially cause substantial damage to the consumer, but yet have no liability or financial obligation, other than to return the fee paid. That’s hardly a formula for fostering careful, diligent, and skillful professionals.

Certain professions restrict liability limitation clauses but permit them under certain circumstances. For example, lawyers are prohibited from entering into any agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement, pursuant to NC Rule of Professional Conduct 1.8(h)(1).  Such a clause or agreement is considered a conflict of interest with the client.  This restriction effectively prevents the use of such clauses in form or standard contracts and agreements with lawyers but permits it when warranted and with appropriate safeguards.  Although there certainly are circumstances where such liability limitation clauses are appropriate, they should not be a routine contract clause in my view.  Restrictions, such as the one contained in the NC Rules of Professional Conduct for attorneys, prevent their widespread use in form agreements.

Unfortunately, the regulations and ethics rules for most professionals in North Carolina do not prohibit or even restrict such liability limitation clauses.  Most professionals essentially are allowed to eliminate all such liability through a contractual provision without restrictions.  Hopefully, more profession regulators will recognize that placing at least some restrictions on these types of clauses will help limit their use to circumstances where justified and with appropriate protections, not merely as part of a form contract that most consumers never bother to read before signing away important legal rights.

As a lawyer, I realize that most of these clauses are inserted upon the advice of attorneys.  Although it may be good technical, legal advice to a professional, it is misguided, bad business, and unprofessional in my opinion.   As a consumer of services, the message that such clauses send me is that the professional is not confident in his or her abilities and doesn’t want to be responsible for any mistakes or misconduct.  I have consistently refused to sign agreements or contracts containing these liability limitation provisions and instead seek out professionals who do not use them or are willing to delete them.

I encourage you as a consumer to do the same thing and, as professional, not to include such provisions in your agreements from a business and professionalism standpoint.  I want to deal with professionals who are competent, confident, careful, and diligent but also willing to accept responsibility for any mistakes that may be made.  I believe that is what most consumers want in dealing with professionals.  Liability limitation clauses send the wrong message and create misguided incentives.   Sometimes good technical legal advice is bad for business and for your profession and professionalism. Any good professional should stand behind his or her work, not hide behind a liability limitation clause.

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