Effective risk allocation is essential in contract law, allowing parties to address potential liabilities and manage their exposure predictably. Business lawyers must draft risk allocation clauses carefully to ensure clarity, foster collaboration, and protect financial interests. This article explores the key types of risk allocation clauses found in business agreements and offers insights into how to negotiate them to achieve fair outcomes. As usual, our analysis assumes that Indiana law applies to the contract, but the same types of clauses are used in every jurisdiction in the United States.

Parties to contracts sometimes leave the negotiation of risk allocation to the last minute, when it can no longer be avoided. After all, few people entering into a business deal expect it to go wrong, and it can be uncomfortable to discuss who will suffer the consequences if it does.  Even worse, some business owners never seriously consider risk allocation at all, expecting their lawyers to draft the language by themselves, under the misconception that indemnification clauses and waivers of consequential damages are just boilerplate that can be copied from one contract and pasted into another. Careful business owners do neither of those things, and their attorneys should try not to let them. Business owners and their lawyers alike should consider and tailor risk allocation languages to the particular situation.  

Key Types of Risk Allocation Clauses 

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