Can We Avoid Redlines to a Limitation of Liability Clause By Turning It Upside Down?
Can we avoid redlines to a Limitation of Liability clause by turning it upside down?
Most Limitation of Liability clauses follow a 1–2 structure:
1 — sweeping disclaimer of all liability
2 — exceptions
Example:
Each party’s total liability will not exceed $X. Neither party will be liable for indirect, incidental, consequential, or special damages. The limitations herein do not apply to indemnities, breach of confidentiality, or gross negligence or willful misconduct.
But this may still get redlined because somebody will say there should be more exceptions.
If we wanted to avoid these redlines, what could we do?
What if we turned our LOL upside down?
What if we put the second part first?
Like this:
Each party will have unlimited liability for indemnities, breach of confidentiality, or gross negligence or willful misconduct. Except as stated in the preceding sentence, each party’s total liability will not exceed $X and neither party will be liable for indirect, incidental, consequential, or special damages.
This upside down clause may avoid redlines through psychology:
✅ Framing!
The word “unlimited” sticks out and frames how we read the clause.
They did a study once and found that people liked beef that was “75% lean” more than they liked beef that was “25% fat.” It’s the same thing! But the framing changes our perception.
The word “unlimited” is a simple twist that reframes the LOL and can make it appear more favorable to a reviewer before they dive into the actual exceptions.
✅ Loss aversion!
We worry more about losing something than gaining something.
When a LOL begins with a sweeping disclaimer of liability, our loss aversion kicks in and we focus on what we stand to lose if the counterparty breaches and our recovery is limited. So we redline more.
But when the clause is turned upside down, it emphasizes the counterparty’s unlimited liability, so our loss aversion isn’t triggered and we may not reflexively pick up the red pen.
✅ Reciprocity!
Psychology says that by making a concession, we induce others to reciprocate.
When we concede “unlimited” liability up front, we may be able to induce our counterparty to reciprocate by accepting our positions and foregoing redlines.
✅ Non- negotiable!
In our upside down clause, we’re upfront about the exceptions where we’ll accept unlimited liability.
It suggests that we’ve carefully considered those scenarios and signals that we’d be less willing to accept redline to add more exceptions.
After all, if we were willing to agree to an exception, we would have just listed it along with the others, right?
Not listed? Don’t bother asking.
Conclusion
So that’s my theory why an upside down LOL may help avoid redlines.
Unlimited liability isn’t for everybody, but if you’re willing to offer it, would turning your LOL upside down help you avoid redlines?
What would you do if you had to review an upside down LOL?
Most Limitation of Liability clauses follow a 1–2 structure:
1 — sweeping disclaimer of all liability
2 — exceptions
Example:
Each party’s total liability will not exceed $X. Neither party will be liable for indirect, incidental, consequential, or special damages. The limitations herein do not apply to indemnities, breach of confidentiality, or gross negligence or willful misconduct.
But this may still get redlined because somebody will say there should be more exceptions.
If we wanted to avoid these redlines, what could we do?
What if we turned our LOL upside down?
What if we put the second part first?
Like this:
Each party will have unlimited liability for indemnities, breach of confidentiality, or gross negligence or willful misconduct. Except as stated in the preceding sentence, each party’s total liability will not exceed $X and neither party will be liable for indirect, incidental, consequential, or special damages.
This upside down clause may avoid redlines through psychology:
✅ Framing!
The word “unlimited” sticks out and frames how we read the clause.
They did a study once and found that people liked beef that was “75% lean” more than they liked beef that was “25% fat.” It’s the same thing! But the framing changes our perception.
The word “unlimited” is a simple twist that reframes the LOL and can make it appear more favorable to a reviewer before they dive into the actual exceptions.
✅ Loss aversion!
We worry more about losing something than gaining something.
When a LOL begins with a sweeping disclaimer of liability, our loss aversion kicks in and we focus on what we stand to lose if the counterparty breaches and our recovery is limited. So we redline more.
But when the clause is turned upside down, it emphasizes the counterparty’s unlimited liability, so our loss aversion isn’t triggered and we may not reflexively pick up the red pen.
✅ Reciprocity!
Psychology says that by making a concession, we induce others to reciprocate.
When we concede “unlimited” liability up front, we may be able to induce our counterparty to reciprocate by accepting our positions and foregoing redlines.
✅ Non- negotiable!
In our upside down clause, we’re upfront about the exceptions where we’ll accept unlimited liability.
It suggests that we’ve carefully considered those scenarios and signals that we’d be less willing to accept redline to add more exceptions.
After all, if we were willing to agree to an exception, we would have just listed it along with the others, right?
Not listed? Don’t bother asking.
Conclusion
So that’s my theory why an upside down LOL may help avoid redlines.
Unlimited liability isn’t for everybody, but if you’re willing to offer it, would turning your LOL upside down help you avoid redlines?
What would you do if you had to review an upside down LOL?