Exclusions of liability: Don't make it worse than it has to be!

Oh, the scourge of the fine print! How we wish we could get rid of it. But sometimes (not all that often), there are very real risks facing a business which, should they materialise, could sink it. In comes the lawyer…
Attorneys have a tendency to exclude liability for everything they can think of – typically:
direct, indirect, consequential, special, punitive or incidental damages whether foreseeable or not, regardless of form or cause of action, whether in contract or in delict or for restitution.
It may of course be that a particular situation calls for a long list of categories of damage, but more often than not these clauses are copied and pasted from precedents without questioning their content (ironic, given the importance of the clause). What are all these types of liability? For instance, what is the difference between indirect and special on the one hand, and direct or incidental on the other? Why exclude liability for unforeseeable damage? Why list these supposed different types of liability at all, if all damages regardless of the cause of action are excluded? Is there even such a thing as punitive damages in South African law?

Rather safe than sorry? No. By listing all of these types of liability, some of which do not extend additional protection to the drafter, the clause may well be perceived as more onerous than it is. These clauses create a very negative impression with customers. Don’t make it worse than it has to be.

Here are some questions which must be asked before drafting an exclusion of liability:

  • What is the business potentially liable for? It is nonsensical to exclude liability if it does not arise in the first place.
  • What liability must be excluded? You may find that the business is happy to accept some of the liability.
  • Is the liability insurable? Why exclude liability if the loss could be insured? If you cannot insure the entire risk, consider using a clause limiting liability to a certain amount, instead of excluding all liability as an alternative.

Here is a crazy thought. Why not say what you are responsible for, in stead of what you aren’t? Fact is, negative formulation increases the mental capacity required for processing text. This increases the chances that the reader could misunderstand the clause. Also, a negative formulation could create a negative image of the organisation sending the communication. Consider the following example:
Original: [The company] is not liable for any losses or damages which you may suffer, regardless of how such losses or damages arise, unless the claims are directly attributable to fraud, dishonesty or gross negligence of [The company] or its employees acting in the course and scope of their employment. [The company] is under no circumstances responsible for any indirect, special or consequential losses or damages.
Revised: [The company] holds adequate professional indemnity and fidelity insurance cover. This means that we are covered against claims that are directly attributable to fraud, dishonesty or gross negligence of employees (not intermediaries) acting in the course and scope of their employment. Note that you cannot claim for any losses you may suffer that arise for other reasons and you cannot claim for any consequential (also referred to as indirect or special) losses.

We asked a group of potential clients whether they felt differently about the revised version compared to the original one and the outcome was thirteen to three in favour of the revised version. The three reactions not in favour of the revision were not negative, but neutral. Here are the most notable reactions:

‘The second version makes me feel like “care” was taken; it is inclusive and considerate and I can trust the institution even though I may lose my money.’
‘I prefer the second version. It creates the impression that [the company] takes responsibility rather than trying to avoid responsibility.’
‘The second version puts my mind at ease.’
‘The second version first tells clients that they have insurance cover and what it means and then what they cannot claim for. It just makes a more positive impression.’
‘It sounds as if [the company] is taking responsibility.’
‘The second version makes more sense. It is in laymen’s terms as opposed to “lawyer language”. So the new version is cleaner and more intuitive and understandable.’
We often read plain language tips and question whether they would really make a difference. From these results we can deduce that positive formulation not only increases reader comprehension, but it also has a positive influence on the reader’s perception of the company. A positive image means increased trust and a better relationship between the client and the company. I’d say that’s a worthwhile difference.
 

About the Author:

Elizabeth de Stadler
Elizabeth is the quirky one in the company. She specialises in all things Consumer Law, plain language drafting and designing and delivering training. She prides herself on being slightly out there and bringing a fresh perspective to compliance issues. She has a Masters (cum laude – the nerd) in Consumer Law. Elizabeth met Paul in 2011 and joined Esselaar Attorneys (she is still a senior associate at the firm). In 2013 they founded Novation Consulting together. Elizabeth is a bit of a nerd. She is the editor of the Consumer Law Review (you can get it here for free!) and wrote A Guide to the Protection of Personal Information Act with Paul. She is also the author of Consumer Law Unlocked, a co-author of the hefty Commentary to the Consumer Protection Act and wrote chapters on the Consumer Protection Act in The Law of Contract in South Africa and The Law of Commerce in South Africa. She is currently working with Liezl van Zyl from the Stellenbosch University Language Centre on Plain language legal drafting, which will be published in 2017. Elizabeth loves Lego, sneakers, zombies and white wine. She hates comic sans font, sweet potato and most other attorneys. She is allergic to suits and ‘office shoes’ because of the years she worked at Webber Wentzel. She is very scared of moths. It is a thing – read about it. Want to find out more about Elizabeth? Check her out on LinkedIn. Better yet, contact her on elizabeth@novcon.co.za or (021) 481 8004.