Members of the 4A’s legal, finance and commercial practices communities have developed agency-client master service agreement (MSA) guidance related to Allocation of Risk, Indemnification & Limitations on Liability. The purpose of this guidance is to help agency management understand the importance of negotiating appropriate and equitable allocation of risk and limitation of liability provisions in every business arrangement.
Why Are Allocation of Risk and Limitations on Liability Important?
Marketing in real time elevates the probability of risks. When claims arise the cost of attorney fees, the discovery process and the vagaries of settlement awards can be catastrophic even if you have some level of third-party insurance.
It is prudent business practice to ensure that the nature and scope of the Agency’s services for the Client dictate the parameters of obligations.
“Inappropriate or inequitable allocation of risk in a contract can damage your Agency and failure to establish reasonable limitations on your Agency’s liability can upend your financial results which in turn will disrupt your ability to retain your talent, invest in client services and provide a reasonable return to your shareholders.”
Agency management teams should be aligned on the principles, nuances and thresholds for all indemnity obligations and limitations.
Download MSA Provisions: Allocation of Risk, Indemnification & Limitations on Liability