What is limitation of liability clause? | Definition from TechTarget (2024)

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What is limitation of liability clause? | Definition from TechTarget? ›

In a software license agreement, for example, the limitation of liability is one of the most important clauses because it limits the amount and types of damages one party can recover from the other party.

These limitation of liability clauses can limit the liability of the design consultant to an obligation to complete services over again that fall below the applicable standard of care either to the amount of the professional services fee, a set dollar amount or the amount of available insurance coverage.

For example, you may see your personal liability coverage with $100,000 listed next to it. This means your insurance company's limit of liability is $100,000, and it will pay claims up to that amount as long as the details fit what's outlined in your policy.

Your liability in running a SaaS app could be endless - from system failure to unsatisfied users. A Limitation of Liability clause protects your SaaS business from these legal dangers by contractually binding a user to being unable to seek certain damages from you.

Notwithstanding anything to the contrary herein, in no event shall the Consultant or Payson be liable for any losses incurred by the Company as a result of the performance of the Services in excess of the (i) the Fee, minus (ii) the Unreimbursed Expenses, if any.

Why is a limitation of liability important? Essentially, a limitation of liability clause limits the number of damages, protects your business from being held liable for large amounts of money, and can even prevent bankruptcy in the event of an unforeseen lawsuit or legal dispute.

A limitation of liability clause limits the amount and/or types of damages that may be attributable to a particular party under the contract for that party's future breach, misconduct while performing under the contract, or indemnification liability.

Limitation of liability means a contractual provision to reduce or exclude the types and amounts of liabilities one party may recover from another party relating to default or non-performance in connection with a contract.

TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, IN NO EVENT WILL COMPANY'S TOTAL LIABILITY UNDER THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, INCLUDING NEGLIGENCE, OR OTHERWISE, EXCEED THE CUMULATIVE PAYMENTS RECEIVED BY COMPANY FROM CUSTOMER UNDER THIS AGREEMENT.

Liability limits are the maximum dollar amount of damages (“indemnity”) an insurance carrier will pay on your behalf.

What is an exception to limitation of liability clause? ›

Examples of exclusions from limitations of liability include losses resulting from a breach of confidentiality, refusal to provide services, death, bodily injury, damage to tangible property, violation of applicable law, gross negligence or willful misconduct.

Example: "The Limitation of Liability clause shall equally apply to both parties, and neither party shall be held liable for consequential damages." This clause demonstrates fairness by ensuring that both TechCo and DevTech are subject to the same limitations, and it excludes consequential damages for both parties.

Limitation of Liability: This clause limits the licensor's liability in the event of any damages arising from the use of the software. It often caps the monetary amount of damages and excludes certain types of damages, such as consequential or incidental damages.

If there is no limitation of liability clause, the party responsible for the breach is responsible for compensating for any reasonably foreseeable damages that it causes to the other party.

One of the most common and effective ways to negotiate a limitation of liability clause is to use a proportional approach, which means that the liability cap is based on a multiple of the fees paid by the client for your services.

The indemnitor promises to defend certain types of lawsuits against the other party (indemnified claims) and to pay settlements and/or judgments. That's an obligation to perform under the contract. And limit of liability terms restrict liability for breach — for damages — not obligations to perform.

In no event shall any party to this Agreement be liable to any other party for any lost profits or special, exemplary, consequential or punitive damages, even if informed of the possibility of such damages.

Limitations of Liability Limitations of liability clauses are one way to apportion risk in a contract between an architect and an owner. The reason that an architect may want this clause in a contract is to allocate the potential risk that the architect is willing to accept for the fee that he or she has been paid.

The amount of the limitation of liability must be meaningful, and must take into account the potential damages that could arise from the project. That said, any limitation is better than none. A low LOL encourages dialogue even if it is ultimately unenforceable.

Liability limits are the maximum dollar amount of damages (“indemnity”) an insurance carrier will pay on your behalf. Limits are broken down into two categories: the per claim limit and the aggregate limit.