Summer 2013

Limitations on Liability Exceptions for Gross Negligence and Willful Misconduct and the Implications for Outsourcing Agreements


In outsourcing agreements, parties typically limit their liability to each other. The parties often exclude from those limitations on liability damages caused by gross negligence or willful misconduct. The definitions of gross negligence and willful misconduct vary by state and the conduct that courts consider as falling under those defini­tions depends on the facts of each case. This article examines the definitions of gross negligence and willful miscon­duct, the difficulty in demonstrating to courts that a party’s conduct meets the standards imposed by those definitions and the implications for outsourcing agreements. For purposes of this article, we focus on New York law, commonly selected as the governing law in large outsourcing transactions.

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