Limitations of Liability
| Author | Jeffrey Wilson |
| Pages | 867-872 |
Page 867
Liability refers to the responsibility, under law or equity, for which a party is bound or obliged to make restitution, compensation, or satisfaction to another for loss or harm. A limitation in liability is a limit placed on the terms or nature of responsibility for loss or harm. It may be expressed in terms of maximum percentage of fault, dollar amount, type of harm or loss, or causative factor, beyond which a party openly denies any responsibility.
Limitations in liability may take several forms, the most common of which are written clauses contained in warranties, disclaimers, waivers, insurance policies, and contract terms. They also may take the form of "exculpatory clauses" which clear or tend to clear parties from any fault or liability for loss or harm to others whatsoever. Governmental entities may limit their exposure to liability for claims by citizens and members of the public (See, sovereign immunity).
Limitations in liability also differ in what they limit. There may be a cap or ceiling on monetary damages; an exclusion of certain forms of damages (e.g., punitive, incidental); or an exclusion for certain kinds of harm (e.g. those caused by acts of God or forces of nature). In product purchases, liability may be limited to the purchaser only, and not to third persons or subsequent owners/users.
In a way, limitations of liability are, for the most part, actual (or tantamount to) terms of contract, and generally enforced under principles of contract law. They generally require actual or implied notice and the consent of all parties to the transaction,—proof of which is generally deemed to be conclusive as to acceptance of the limitations.
States have different laws regarding the extent to which persons or business entities may limit their liability to others. Since each state may have several laws dealing with limitations of liability (according to the application), contacting the subject state's department of insurance is advised for guidance and clarification. (See Organizations listed below.)
Warranties guarantee minimum standards or performance in products or services. They may be express (as in a manufacturer's certificate of warranty that is attached to a consumer product), or implied (as in the common law implied warranty of merchantability). Manufacturers' warranties are controlled by federal and state laws, including the Uniform Commercial Code (UCC) Warranties are essentially statements of declared limits to liability, e.g., "Five years or 50,000 miles" for some new vehicles.
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A disclaimer is a limitation of liability otherwise attaching to an actual or implied warranty. It works as a substitute for what is otherwise warranted, other than that which is expressly warranted by the drafter of the disclaimer. Disclaimers of all warranties is common in items or goods sold on an "as is" basis.
One of the most common forms of limiting liability is through the application of monetary caps or ceilings to the amount recoverable in any claim for loss or harm. So widespread and successful is this practice that it is often incorporated into statutory provisions to ensure uniformity and requisite notice to third persons.
Many states have passed legislation capping the available remedies in tort cases (tort reform). Such legislation is particularly intended to address those cases in which emotion may cause "runaway juries" to award millions or billions of dollars in cases that play on their sympathy or anger.
Two broad areas of tort litigation undergoing constant reform are products liability and medical malpractice. In the area of medical malpractice, a majority of states have enacted tort reform legislation, many of which limit non-economic damages (e.g., to $250,000) as a result of lobbying from insurance companies.
Congress and state legislators have enacted many provisions over the years that serve to limit the available remedies in certain cases or controversies (e.g., the Limitation of Liability Act, 46 USC 181 et seq., regarding cargo shipments)or the Federal Tort Claims Act. Other examples in which Congress has eliminated liability for ordinary negligence, but not for intentional or willful misconduct, include the Bill Emerson Good Samaritan Food Donation Act, the Volunteer Protection Act, the Aviation Medical Assistance Act of 1998, and the Paul D. Coverdell Teacher Protection Act of 2001. These statutes grant private parties immunity from suit in many cases, or otherwise limit their exposure to liability, by declaring them federal employees for purposes of the benefit or good they are providing to the public at large. Likewise, in 2005, during a global threat of a particularly virulent form of the flu virus, the 109th Congress worked on legislation to limit the liability of pharmaceutical manufacturers of flu vaccines. This was intended to accelerate the production of new strains of flu vaccines needed to address a potential pandemic, without developers being unduly delayed by fear of liability for untoward complications or negligence in the testing, manufacturing, labeling, distribution, dispensing, prescribing, or administering of the vaccine.
By far, the lion's share of monetary damages awarded in jury trials or voluntary settlements comes from insurance money. At one time, insurance companies merely increased their premiums across the board to recoup their losses. However, insurance premiums have reached all-time highs, and consumers are no longer willing to accept this solution. An alternative has been to sharply raise the limitations of coverage offered by insurers. In health insurance, for example, this may take the form of more stringent limitations on pre-existing conditions, or a lower maximum dollar amount payable per injury/illness or per incident. Although insureds may file suit for reimbursement or payment of larger amounts, the stated policy limit will generally be held valid.
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