Liquidated Damages – Contract Tip of the Week

Q: What are liquidated damages? Are they covered by insurance?

A: Liquidated damages are typically a penalty for late performance under a contract. The parties can agree that instead of filing a claim for delayed completion, an owner can recover an agreed upon amount without providing any evidence of the actual damages. Since liquidated damages don’t require a finding of negligence, they’re generally uninsurable.

The Risk Specialty Group and RLI Design Professionals are pleased to feature our Contract Tip of the Week series. Each week, we’ll review a question submitted by a design firm relating to the subject of contracts. Keep in mind, though, that these discussions are general in nature and in making specific business decisions, it’s important to review your options with a knowledgeable attorney.