Liability and Exclusion of Liability
I am working on both a software licence and support agreement and both have Limitation terms in the agreements.
If a supplier has the following wording in an agreement for both the software and the support.
LIMITED LIABILITY OF supplier. SUBJECT ALWAYS TO SECTION 8(a) AND EXCEPT IN THE EVENT OF supplier DAMAGE TO LICENSEE’S TANGIBLE PROPERTY, THE TOTAL LIABILITY OF supplier, ITS AFFILIATES AND THIRD PARTY LICENSORS IN CONNECTION WITH OR RELATED TO SUPPORT, HOWSOEVER ARISING, INCLUDING BUT NOT LIMITED TO LIABILITY UNDER OR FOR BREACH OF CONTRACT OR FOR NEGLIGENCE, SHALL UNDER NO CIRCUMSTANCES EXCEED ONE HUNDRED AND TEN PERCENT (110%) OF THE FEES PAID OR PAYABLE BY LICENSEE FOR THE TWELVE MONTH CONTRACT PERIOD IN WHICH SUCH LIABILITY ARISES.
Question 1: Should this be more 110% and covers ongoing support after the 1st 12 months if the licenses are perpetual?
Supplier MAXIMUM LIABILITY IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE FOR PHYSICAL DAMAGE TO LICENSEE’S TANGIBLE PROPERTY SHALL UNDER NO CIRCUMSTANCES EXCEED ONE MILLION POUNDS STERLING (£1,000,000) PER EVENT OR SERIES OF EVENTS.
Question 1: Is this sufficient?
Sufficiency depends on whether you are the buyer or the seller in the contemplated agreement. Please note that I am not a lawyer and this does not constitute legal advice. The reason that suppliers attempt to limit their liability to the fees collected is because the liability associated with the application of their software could exceed by many multiples the value of the fees they collect. The outcome in certain circumstances could be catastrophic to the supplier if the liability is borne by them - especially if there is no insurance coverage for the contemplated risks. The answer to your question is one that should be answered by an attorney who understands the business you are in and ultimately, management will need to make a call as to whether the limits of liability proposed in this contract are acceptable to them. If not, the clause will need to be negotiated and the economics associated with insurance will have to be factored in - either your company buys the insurance (or self insures) or your supplier will buy insurance, in which case, you should expect that the cost will be passed on in the form of fees to you.