Limitation of Liability

In one sentence

A contract clause capping the damages one party can recover if things go wrong.

Plain English

A limitation of liability clause is a contract provision that puts a ceiling on how much money someone can recover if the other party breaches or causes harm. For example, a clause might say "our liability is limited to the amount you paid us" or "we're not responsible for damages over $10,000." These clauses help businesses manage risk and keep insurance costs down. However, courts won't enforce limitations that are unreasonably one-sided or that try to shield someone from their own gross negligence or intentional wrongdoing.

Ad slot

Example

A software company's terms of service include a limitation of liability saying they're not responsible for damages exceeding the customer's annual subscription fee. If a bug costs the customer $100,000 in lost business, they can only recover their subscription amount.

Used in a sentence

“The limitation of liability clause capped the contractor's exposure at $50,000 even though the defective work caused $200,000 in damage.”

Related terms

Indemnity Clause

A contract provision requiring one party to compensate the other for losses, damages, or legal costs arising from specified events.

Disclaimer of Warranties

A statement that removes or limits the automatic guarantees a seller would otherwise provide.

Enforceability

The legal ability to compel someone to follow through on a contract's terms in court.

Material Fact

A fact that significantly affects a party's rights, obligations, or decision-making in a contract.

Remedy

A legal action or payment a court awards to fix a harm or enforce a right after a breach.

Boilerplate Clause

Standard, repetitive contract language used in many agreements without customization.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.