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Contract Provision to Avoid


Do you agree to a contract provision that, in the event of a dispute, permits the "prevailing party" to recover its attorney's fees from the other party? If so, you might want to give the matter another think. Attorney's fees can mount quickly and, if "the other guy" prevails, you might have to pay tens of thousands or more dollars from your own pocket. Why? Because professional-liability- (PL-) insurance policies do not cover contractual liabilities and agreeing to pay the prevailing party's attorney's fees creates a contractual liability; i.e., no PLI protection. And by the way, what does "prevailing party" mean? In fact, given the outlook of the specific court involved, a party could recover just 10% or 15% of its claim, but still be considered to have prevailed and thus be entitled to recover 100% of its attorney's fees. What to do? Strike the clause when you can, but at least define "prevailing party." more

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