Leading insurance brokers and lawyers across the country report that lawsuits against ad and PR agencies have soared by 30% over the past few years, and show no sign of letting up. These suits generally involve allegations involving the improper rendering of advice and ineffective advertising tools, techniques, campaigns, and strategies. These suits are costly to defend. Moreover, because clients invariably seek loss of anticipated profits, it isn't unusual for clients to seek hundreds of thousands of dollars, if not millions, in damages.
Ten years ago, clients were more willing to welcome ad and PR agencies into the corporate family and work with them when challenges and problems arose. Today, however, when the advice, campaigns, and strategies offered by consultants and agencies do not meet clients' expectations, there is no hesitation to hire lawyers and race to the courthouse. Clients defend lawsuits by arguing that they are looking to bring some accountability to these professions. In turn, advertising and PR firms counter that they are simply scapegoats for corporate executives seeking cover. As a result of this flood of lawsuits, these professional-service companies are not becoming more conservative in their advice. Rather, they're simply more careful now about how they approach a project. Handshake deals and verbal accords have been scrapped for written contracts with legal protection. Also, many are insisting that two key provisions be written into the contract: a Limitation of Liability Provision (LLP) and a One-Year Time Limitation to File Suit. An LLP is a contracted-for term that caps the monetary liability of the ad or PR agency in the event of a lawsuit. The most common LLP limits the firm's liability to the fees paid to it by the client. This precludes the client from recovering consequential damages, such as loss of anticipated profits, which can be crippling and can send a firm into a financial crisis or bankruptcy. In most states, LLPs are valid and enforceable so long as they are properly drafted. Moreover, most states, Pennsylvania and New Jersey included, allow firms to limit liability, even for breach of contract and negligence. A One-Year Time Limitation to File Suit is a contracted-for term that modifies the otherwise applicable statute of limitations (usually two to four years) and provides that any lawsuit against an ad or PR agency must be filed within one year of the date of the alleged wrongful act or conduct. This provision helps to prevent against the difficulty of defending a lawsuit filed two or more years after the alleged wrongful act or conduct when memories have faded, documents have been lost or destroyed, and witnesses have moved or passed on. Like an LLP, this provision is enforceable in most states so long as it is properly drafted. Don't expect clients to roll over and agree to these and other contractual provisions without some persuasion. However, advertising and PR agencies can employ one negotiating tactic that has passed the test of time: advising the client that the fee being charged is based upon the liability being assumed by the firm for the project. Then, the agency can offer the client a greater limitation of liability or longer time period to sue in exchange for higher fees. This negotiating tactic usually results in a win/win scenario. The client either agrees to the original limitation of liability and the one-year period in which to sue, or agrees to pay the agency more money for more protection. Marketing professions are changing. They have come far from the days when firms were welcomed by clients into the corporate family. Rather than altering the way you do business, consider changing your legal contract to enable you to prosper in the current business and legal environment. Michael Revness is president of the law firm of Kurtz & Revness, P.C.
