Limitation of liability
Liability cap · Limitation clause
A limitation of liability clause sets boundaries on the type or amount of loss for which a party can be held responsible under a contract, subject to applicable law.
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Simply put
What it means in ordinary work
It puts a ceiling or exclusions around some liabilities. The practical effect depends on what is capped, what is excluded and what the law does not allow the parties to exclude.
Why it matters
Liability limits affect insurability, price and risk allocation. A cap that is too low can leave the buyer exposed; one that is too high may be uninsurable or priced into the deal.
A hypothetical in practice
A hypothetical services contract caps most claims at the fees paid in the previous twelve months, while keeping separate treatment for confidentiality, fraud and specified data incidents. The parties check enforceability with local counsel.
Common pitfalls
A cap expressed as a multiple of fees can become tiny if fees are low and the potential loss is large.
Carve-outs can overwhelm the cap. List the exceptions and the insurance response clearly.
Scope and limits
General commercial explanation only. Enforceability and permitted exclusions depend on governing law and the contract.
Regional lens
How this lands where you work
The global explanation is canonical. Regional notes are additive, separately sourced and shown with their own review state. They never replace the global meaning.
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As-of date for date-sensitive regional content: 5 November 2026. Read the review policy.