Clause guide
Limitation of Liability clause: meaning, risks, and what to negotiate
Caps or narrows the damages one party can recover from the other.
What it means
This clause determines how much financial protection you have if something goes wrong. A low cap or broad exclusions can leave you underprotected.
Common risks
- • The liability cap may be too low compared to contract value or risk.
- • Important claims may be excluded from recovery.
- • The clause may protect the other side more than it protects you.
What to check before signing
- • What is the liability cap and how is it calculated?
- • Are direct damages recoverable?
- • Which claims are carved out from the cap?
Negotiation ideas
- • Tie the cap to fees paid over 12 months or a meaningful multiple of fees.
- • Exclude confidentiality breaches, IP infringement, fraud, and willful misconduct from the cap.
- • Make the limitation mutual where possible.
Example clause
“Except for excluded claims, each party’s aggregate liability under this Agreement shall not exceed the fees paid or payable in the twelve (12) months preceding the claim.”
Frequently asked questions
Should every contract have a liability cap?
Most commercial contracts do, but the right amount depends on the deal, the risk, and the type of harm that could occur.
Related clauses
Want help reviewing the full contract?
A single clause rarely tells the whole story. Scan the full agreement to spot risks, missing protections, and negotiation points across the whole document.