Risk Management 101: Other Contractual Protections (Part 2)
As promised, this month we conclude our Risk Management 101 series discussing some remaining "boilerplate" terms: limitations periods; dispute resolution (including choice of law and choice of form); and notice provisions.
oLimitations Periods. The law imposes time parameters for the commencement of certain types of claims. Contracting parties, however, may choose to shorten or lengthen these periods. Insurance policies, for example, often contain a requirement that the insured notify the carrier of a loss within a defined period of time, or forfeit the insured's right to coverage. Contractually defined limitation periods are particularly useful for reinforcing or complementing other contractual provisions, such as limitations on damages. Many states uphold these provisions just as they would other agreed-upon terms. Some states, however, either do not enforce such provisions or scrutinize them more closely than other terms.
oDispute Resolution. You may choose to forego litigating your dispute in court in favor of arbitration or mediation. Or you may choose a combination of courts and alternative options depending upon the type of dispute. Consider whether the dispute should be decided by a judge or by a member of the industry. Do you favor a strict application of the law or a more practical business-centered approach? Do you want to take your chances with a single decision maker or a panel of experts? Are you willing to waive your right to a trial by jury? Do you want multiple bites at the apple with opportunities to appeal adverse rulings? Or do you want the shortest, simplest, cheapest alternative available (which, by the way, may not be arbitration)? All of these considerations and more can be addressed in a well-crafted dispute resolution provision.
oChoice of Forum. Consider where you wish to have your dispute heard. Is there a convenient venue near your headquarters? Do you prefer to be in your "hometown" state court, or would you prefer the federal system? If you have elected to pursue alternative dispute resolution, will the arbitration/mediation be local, at a nearby metropolitan area or at the offices of a nationally recognized dispute resolution center? Must the dispute be heard in person, or are video or telephone conferences acceptable for some or all types of disputes?
oChoice of Law. Whether you are in a court or an alternative dispute resolution venue, the dispute will be governed by legal principles. Different states have varying views of both substantive and procedural matters. Although it is most common for the law of the state where the parties are located to apply, this need not necessarily be so. You should especially consider what law will apply when the contracting parties are in two (or more) states with differing views of critical legal issues.
oNotice Provisions. Notice provisions set forth the exact timing and manner in which one party must notify the other of something. What that "something" is will depend on the nature of the contract and the risk being addressed. Notice provisions can be general, specific or both. For example, less significant matters may be noticed one way while highly sensitive matters are noticed another way (for example, to a senior executive, by multiple delivery methods, etc.). Notice provisions may start a clock running, whether that clock is statutorily or contractually set. Some courts require strict adherence to notice provisions, while other courts are willing to overlook non-material deficiencies. The bottom line is that you should consider the best way for your company to receive a notice so that it can respond and act appropriately.
In sum, although your contracts department undoubtedly will start with your company's "standard" contract for the type of relationship being established, it is important to consider when that "standard" contract should be tailored to the particular circumstance at hand. Hopefully, Risk Management 101 has helped you identify ways to improve upon your current business practices and to customize your standard contracts when appropriate.
Kristi Davidson is a shareholder in the New York City office of Buchanan Ingersoll & Rooney. She can be reached at email@example.com.
Editor's Note: The comments are those of the author and are not necessarily views shared by HFN or Macfadden Communications.