A negligence clause is a contractual provision that allocates responsibility and potential liability between parties when one party fails to exercise reasonable care in performing their obligations.
These clauses typically aim to limit financial exposure for errors or omissions while maintaining accountability for serious breaches of duty.
Negligence forms a fundamental concept in American business law, defined as the failure to exercise the level of care that a reasonable person would under similar circumstances.
When incorporated into business contracts, negligence clauses specify who bears responsibility for such failures and to what extent. These provisions can limit liability for ordinary negligence, exclude certain types of damages, or carve out exceptions for more serious forms of negligence such as “gross negligence.”
In business insurance contexts, negligence clauses directly impact both liability exposure and insurance coverage. Professional liability insurance (also called errors and omissions insurance) specifically protects businesses against claims of negligence in their professional services.
The specific language in negligence clauses often determines whether an insurance policy will cover a particular claim and the extent of that coverage.
The standard of reasonable care varies by profession and circumstance, with professionals like accountants, lawyers, and doctors generally held to higher standards reflecting their specialized training and expertise.
For business owners, understanding negligence clauses is critical when reviewing contracts with clients, vendors, and partners. These clauses define the financial risk a business assumes when entering agreements.
Without proper attention to these provisions, a business might inadvertently accept unlimited liability for mistakes, potentially leading to financial consequences exceeding insurance coverage limits.
A well-crafted limitation of liability clause addressing negligence should clearly specify what types of negligent acts are covered, any monetary caps on liability, and any exclusions. Most importantly, business owners should ensure these clauses align with their insurance coverage to avoid protection gaps.
From the client perspective, a reasonable negligence clause can actually result in more affordable services since providers don’t need to build excessive risk premiums into their pricing.
However, negligence clauses also present challenges that businesses must navigate carefully. Courts may scrutinize these provisions, particularly when they heavily favor one party or attempt to limit liability for gross negligence.
Negotiating these clauses can create tension in business relationships, as each party naturally seeks to minimize their own risk exposure while maximizing protection. Finding the right balance requires careful consideration of both legal and commercial constraints..
Many states prohibit limitations on gross negligence on public policy grounds. Some industries have regulatory restrictions on how liability can be limited, creating compliance challenges for businesses operating across multiple jurisdictions.
Examples of state jurisdictional differences are set out below:
| State | Approach to Gross Negligence Limitations | Public Policy Grounds | Legal Measures |
|---|---|---|---|
| Alaska | Very Strict | Prohibits waivers of gross negligence based on public policy | Case law establishes that waivers for gross negligence violate public policy |
| Arizona | Very Strict | Prohibits waivers of gross negligence based on public policy | Case law establishes that waivers for gross negligence violate public policy |
| California | Very Strict | Prohibits indemnification for intentional harmful acts, but generally allows coverage for grossly negligent conduct | City of Santa Barbara v. Superior Court, 41 Cal.4th 747 (Cal. 2007); Prohibits waivers for gross negligence |
| Connecticut | Very Strict | Courts have invalidated waivers that would remove incentives to protect public safety | Hanks v. Powder Ridge Restaurant Corp., et al., 885 A.2d 734 (Conn. 2005); Does not recognize degrees of negligence but limits application of releases where public policy is implicated |
| New York | Very Strict | Courts will not enforce liability limitations that would shield a party from grossly negligent conduct | Defines gross negligence as conduct that “evinces reckless disregard for the rights of others or smacks of intentional wrongdoing”; N.Y. Gen. Oblig. § 5-326 voids waivers for recreational facilities |
| Pennsylvania | Very Strict | Prohibits waivers of gross negligence based on public policy | Case law establishes that waivers for gross negligence violate public policy; waivers may protect against gross negligence only if specifically named |
| Vermont | Very Strict | Courts have invalidated waivers that would remove incentives to protect public safety | Case law establishes that waivers for gross negligence violate public policy |
| Florida | Moderate | Balance between contract freedom and public protection | Statutorily defines gross negligence as “conduct so reckless or wanting in care that it constituted a conscious disregard or indifference to the life, safety, or rights of persons exposed to such conduct”; Precludes insurability of directly assessed punitive damages but allows coverage for vicarious liability |
| Illinois | Moderate | Inconsistent approach to gross negligence | Shows inconsistent precedents – some courts view gross negligence as simply heightened negligence, while others equate it to recklessness; A waiver will protect against liability for gross negligence, but not for reckless misconduct or willful and wanton acts; Precludes insurability of directly assessed punitive damages but allows coverage for vicarious liability |
| Texas | Moderate | Balance between freedom of contract and public safety | Applies a two-step analysis weighing freedom of contract against the punitive purpose of exemplary damages; Law remains uncertain regarding insurability of punitive damages |
| New Jersey | Moderate | Balance between contract freedom and public protection | Precludes insurability of directly assessed punitive damages but allows coverage for vicarious liability |
| Ohio | Moderate | Balance between contract freedom and public protection | Follows the general principle that waivers of gross negligence are against public policy; Law remains uncertain regarding insurability of punitive damages |
| Louisiana | Special Case | Strong statutory prohibition | Civil Code Article 2004 statutorily nullifies clauses limiting liability for physical injury or gross fault; Courts view liability waivers as ineffective in protecting businesses from liability for personal injuries |
| Montana | Special Case | Strong statutory prohibition | Montana Code Ann. § 28-2-702 statutorily prohibits contracts exempting anyone from responsibility for negligence |
| Virginia | Special Case | Complete prohibition on exculpatory agreements | Refuses to enforce exculpatory agreements entirely |
Negligence Clause Benefits and Challenges
Negligence clauses offer several significant benefits to businesses, including providing predictability and financial security by establishing clear boundaries of liability. They allow businesses to effectively manage risk through insurance coverage and pricing structures that reflect actual liability exposure.
For service providers, negligence clauses prevent situations where liability for a single mistake could far exceed the revenue from the project, allowing certain high-risk services to be economically viable without requiring excessively high prices to offset potential liabilities.
From the client perspective, a reasonable negligence clause can actually result in more affordable services since providers don’t need to build excessive risk premiums into their pricing.
However, courts may particularly scrutinize negligence clauses when they heavily favor one party, or attempt to limit liability for gross negligence.
State prohibitions of limitations on gross negligence on public policy grounds are mentioned above. Some industries also have restrictions on how liability can be limited, creating compliance challenges for businesses operating across multiple jurisdictions.
Negotiating these clauses can create tension in business relationships, as each party naturally seeks to minimize their own risk exposure while maximizing protection. Finding the right balance requires careful consideration of both legal and commercial constraints.
Negligence Clauses: Legal Trends
Legal developments continue to reshape the enforcement and interpretation of negligence clauses, particularly in contractual agreements and tort claims.
The developments highlight a judicial preference for balancing contractual freedom with public accountability.
Enforceability of Exculpatory Clauses
Courts continue to distinguish between ordinary negligence and gross negligence when evaluating liability limitations:
- New York’s “Part 60 Put-Back Litigation” (2020):
The Court of Appeals ruled that gross negligence invalidates only exculpatory clauses (which eliminate liability entirely) or nominal damages clauses, but not contractual provisions that limit remedies while preserving meaningful recourse. For example, a “sole remedy” clause requiring loan repurchases in a breach of contract survived gross negligence allegations because it provided substantive relief 2. - Impact: Contractual limitations on liability remain enforceable unless they completely shield parties from accountability for grossly negligent conduct.
Statutory Overrides of Contractual Releases
State statutes increasingly supersede private agreements:
- Colorado Supreme Court (Miller v. Crested Butte):
A release signed by a parent did not bar a negligence per se claim against a ski resort for violating the Ski Safety Act and Passenger Tramway Safety Act. The court emphasized that statutory safety duties cannot be waived by private agreements3. - Implication: Clauses attempting to limit liability for violations of public safety laws face heightened judicial skepticism.
Federal Tort Claims Act (FTCA) and Sovereign Immunity
The FTCA’s discretionary-function exception continues to shield federal agencies from certain negligence claims:
- Eleventh Circuit Ruling (2024):
Negligence claims against the FBI for a botched no-knock warrant were barred under the discretionary-function exception, as planning and executing warrants involve policy judgments. However, claims for assault/battery were blocked under the Supremacy Clause, which immunizes federal agents acting within their authority 1. - Feres Doctrine Persists: In Carter v. United States (2025), the Supreme Court declined to revisit Feres v. United States (1950), which bars service members from suing for injuries “incident to military service.” This preserves broad immunity for negligence claims against military healthcare providers 5.
Notable Cases and Their Implications
| Case | Ruling | Impact on Negligence Clauses |
|---|---|---|
| In re Part 60 Put-Back Litigation (NY, 2020) 2 | Gross negligence voids only exculpatory/nominal damages clauses, not remedy-limiting provisions. | Preserves contractual flexibility while upholding public policy against shielding gross misconduct. |
| Miller v. Crested Butte (CO, 2024) 3 | Statutory safety violations negate private release agreements. | Reinforces that public safety laws override contractual risk-shifting. |
| Carter v. United States (2025) 5 | Feres doctrine remains intact, barring military-related negligence suits. | Limits avenues for challenging negligence in federally controlled contexts (e.g., military healthcare). |
| Eleventh Circuit FTCA Ruling (2024) 1 | Discretionary-function exception bars negligence claims against federal agents. | Strengthens sovereign immunity protections for policy-driven federal actions. |
Trends in Contract Drafting
Recent rulings underscore critical considerations for drafting negligence clauses:
- Specificity Matters:
- Clauses must clearly define excluded conduct (e.g., “gross negligence” vs. “ordinary negligence”).
- Example: “Liability is capped at $X for ordinary negligence but excluded entirely for gross negligence or willful misconduct.”
- Statutory Compliance:
- Ensure clauses do not conflict with state or federal safety statutes (e.g., Colorado’s Ski Safety Act).
- Releases for recreational activities may not shield against violations of codified safety duties3.
- Government Contracts:
- Sovereign immunity and FTCA exceptions limit negligence claims against federal entities. Private contractors working with federal agencies should include indemnification clauses addressing these immunities.
Unresolved Issues
- Gross Negligence Standard: Courts remain divided on whether “gross negligence” requires conscious disregard for risks (NY 2) or merely a significant departure from reasonable care (Colorado 3).
- Class Action Certification: The Ninth Circuit’s LabCorp decision (2024) allows class actions with potentially uninjured members if common issues predominate 1. This could expand negligence claims against businesses with standardized practices.
Legal Trends Citations:
- https://www.naag.org/attorney-general-journal/supreme-court-report-volume-32-issue-6/
- https://law.justia.com/cases/new-york/court-of-appeals/2020/84.html
- https://leg.colorado.gov/agencies/office-legislative-legal-services/cases-note
- https://www.dlapiper.com/en/insights/publications/derisk-newsletter/2024/supreme-court-makes-latest-decision-on-claims-made-clauses
- https://www.supremecourt.gov/opinions/24pdf/23-1281_8759.pdf
- https://www.herbertsmithfreehills.com/notes/litigation/2024-01/high-court-finds-limitation-clause-effective-to-limit-liability-for-dishonest-breaches-of-contract
- https://www.oyez.org/cases
- https://btlaw.com/insights/blogs/policyholder-protection/2023/state-supreme-court-decision-highlights-need-to-get-insurance-and-indemnity-clauses-construction
You may not have known this:
While many business owners assume all negligence clauses are enforceable if properly written, most U.S. courts will not enforce contractual provisions that attempt to limit liability for gross negligence, regardless of how clearly they’re written.
Most U.S. courts distinguish between contractual limitations for ordinary negligence (generally enforceable) versus gross negligence or willful misconduct (generally unenforceable regardless of contract language). This legal boundary ensures basic public policy protections while still allowing businesses reasonable risk management through contracts
Courts generally view such attempts as contrary to public policy, reasoning that allowing parties to escape consequences for seriously reckless behavior would encourage dangerous practices.
This creates an important distinction where ordinary negligence liability can often be limited, but liability for more extreme forms of negligence cannot be contractually avoided.
This is why many indemnification clauses in commercial contracts specifically exclude gross negligence from protection, even when they limit liability for ordinary negligence.
Sources
Negligence | Wex | US Law | LII / Legal Information Institute
Professional Liability Insurance Coverage & Costs – Business.com
Limitation of Liability Clause: A Comprehensive Guide | Icertis
Negligence Laws By State (2025): A Complete Guide
Does Business Insurance Cover Breach of Contract? – Insureon
Gross Negligence Revisited | United States | Global law firm
Indemnification Clauses in Commercial Contracts | Thomson Reuters
Limiting Liability for Professional Negligence – PNC Legal
Liability Insurance: What It Is, How It Works, Major Types
Insurance Fundamentals: “Other Insurance” Clauses