Indemnification, Force Majeure and Other “Boilerplate” Provisions Can Have a Major Impact on Commercial Contract Disputes
Most business owners and executives don’t give much (if any) thought to the “boilerplate” provisions in their companies’ contracts. While they may put a significant amount of effort into negotiating the financial and commercial terms of the deal, they may simply rely on their companies’ legal counsel to ensure that the boilerplate terms at the end of the contract adequately serve their intended purpose.
But, while these boilerplate terms may not be particularly noteworthy from a business perspective at the time of negotiation, they can become hugely important in the event of a contract dispute. In fact, when evaluating a dispute, a Miami breach of contract lawyer will often analyze the boilerplate terms before reviewing the business terms of the deal.
Understanding the Implications of “Boilerplate” Terms in Commercial Contract Disputes
Here are five examples of common boilerplate terms in commercial contracts that can play a significant role in both the process and the outcome of a dispute between the parties:
Indemnification clauses serve to shift liability between the parties to a commercial contract. If one party is liable to indemnify the other, this means that it has prospectively assumed financial responsibility for any successful third-party claims covered under the parties’ indemnification clause.
Indemnification clauses will frequently include “defense” and “hold harmless” provisions as well. If a contracting party is obligated to “defend and indemnify,” then it must bear both the cost of defending against the claim and the cost of paying any verdict of settlement. Of course, as a practical matter, if a company is liable to indemnify, then it will generally want to play a role in the defense process. “Hold harmless” provisions cover slightly different scenarios, though they serve the same general purpose of shifting liability between the parties.
As a result, indemnification clauses can play a central role in contract-based commercial litigation. In many cases, disputes can also arise with regard to the parties’ indemnification responsibilities. If an indemnification clause is ambiguous, this can trigger litigation that outlasts the resolution of the underlying claim.
2. Limitations of Liability
Limitation-of-liability clauses can play an important role in direct litigation between contracting parties. Clauses that substantially limit a party’s liability can even make litigation untenable—which is often the point. If the damages that are available to a party in litigation do not exceed (or only barely exceed) the anticipated costs of the litigation itself, this is a factor that will require careful consideration when the party is deciding how to proceed.
Limitations of liability can take several forms—from dollar-amount damages caps to caps based on the value of the contract and even restrictions to seeking specific performance or injunctive relief. As a result, when facing the prospect of litigation under a commercial contract, each party must work with its Miami breach of contract lawyer to determine what options it has available.
3. Force Majeure
While force majeure clauses used to be rarely litigated, they came into the spotlight during the COVID-19 pandemic. When pandemic-related restrictions prohibited companies from doing business and supply chain issues got in the way of companies meeting their performance obligations, many suddenly found themselves scrambling to find out if their commercial contracts’ force majeure clauses applied.
Many did not. While most pre-pandemic force majeure clauses addressed significant weather events and other “acts of God,” relatively few addressed pandemics and other health-related emergencies. Post-pandemic force majeure clauses look very different, and now these clauses receive much more attention both during negotiations and when commercial contract disputes arise.
Broadly speaking, force majeure clauses excuse contracting parties from their performance obligations when their ability to perform is impeded due to circumstances beyond their control. However, whether (and to what extent) a party’s performance is excused depends heavily on the specific language in the parties’ agreement. If a party’s performance is excused, it may be in both parties’ best interests to find a new mutually agreeable path forward. But, if a party’s performance is not excused, its counterparty may have significant leverage in commercial contract litigation and/or settlement negotiations.
4. Mandatory Mediation or Arbitration (or Both)
Mandatory alternative dispute resolution (ADR) clauses can also play a significant role in determining how parties approach commercial contract disputes. While these clauses are ostensibly neutral (in most cases), as a practical matter they will often favor one party or the other. Mandatory arbitration clauses can require mediation, arbitration or both, and they can include a variety of stipulations that may make it more or less difficult for each party to achieve a favorable outcome.
5. Choice of Law, Choice of Venue and Legal Fees
Regardless of whether a commercial contract includes a mandatory ADR clause, it will almost certainly include provisions regarding choice of law and choice of venue. Many commercial contracts include provisions that require the non-prevailing party to pay the prevailing party’s legal fees following a dispute as well.
These clauses can also play a significant role in the early stages of a dispute. For example, if the law that governs the parties’ contract clearly favors one party or the other, this could either facilitate or effectively preclude litigation. Likewise, if a party will need to travel across the country to pursue its claims in arbitration or in court, this additional expense may factor into the party’s decision-making as well. Finally, if there is a risk that an unsuccessful lawsuit (or defense) could result in liability for the other party’s legal fees, this alone could be enough to spur settlement negotiations.
Speak with a Miami Breach of Contract Lawyer in Confidence
At Edelboim Lieberman Revah, we represent companies in commercial contract litigation throughout Florida and nationwide. If you have questions about what the boilerplate provisions in one of your company’s contracts mean for a pending or potential dispute, we invite you to get in touch. To schedule an appointment with an experienced Miami breach of contract lawyer, call 305-768-9909 or inquire online today.