In a recent decision, the U.S. Court of Appeals for the Eleventh Circuit considered whether an “exculpatory clause” is valid if it insulates a party from any damages for breaching a contract. The case involved a contract between a Brazilian travel agency and a Florida software company to design an online travel booking engine. The contract contained an exculpatory clause stating that the client could not recover any damages if the software company breached the contract. Although IT vendors often propose exculpatory clauses in their form contracts, the Eleventh Circuit noted that the exculpatory clause at issue was unusually broad because it precluded the client from recovering any damages whatsoever.

Almost two years after the parties signed the contract, the software company still had not completed the project. So, the client sued the software company and received a $100,000 jury verdict. On appeal to the Eleventh Circuit, the software company argued that the jury verdict had to be overturned because of the exculpatory clause in the contract. The client contended that the exculpatory clause was invalid because it left the client with no recourse to enforce the contract obligations against the software company. The Eleventh Circuit considered whether the exculpatory clause was enforceable, and concluded some cases supported each side of the argument under Florida law. Thus, the Eleventh Circuit determined that the validity of the exculpatory clause turned on an unsettled question of Florida law and certified this question to the Florida Supreme Court.

In many ways, the Eleventh Circuit’s decision raises more questions than it provides answers. The decision does, however, have two important implications for clients. First, the decision tees up an important question of whether a broadly worded exculpatory clause completely insulating a party from damages is enforceable under Florida law. Until this question is resolved, clients should take care to determine whether exculpatory clauses in their own contracts suffer from similar enforceability questions. Likewise, clients that include exculpatory clauses in their contracts should closely follow this case to determine the full extent to which such a clause can insulate them from damages under Florida law. Second, this decision also illustrates one of the many pitfalls clients encounter when executing IT services contracts. Vendor-proposed IT services contracts often contain various types of exculpatory provisions, and the clause in this case (if enforceable) could leave the client with no recourse. To avoid similar pitfalls, clients should employ a team with both technical and legal expertise to carefully review and negotiate IT services contracts. Failure to do so could leave a client with little or no recourse if the service provider breaches the contract.