Limitation of Liability Clause

The ceiling on what a contract can cost you when it goes wrong — and the list of things the ceiling does not cover.

No account, no card — the whole reading, in about half a minute.

What A Limitation of Liability Clause Does

A limitation of liability clause puts a maximum on what one party can recover from the other, and usually excludes whole categories of loss on top of that. It is the clause that decides whether a failed project costs the fees paid for it or costs the business behind it.

It has two halves, and the second is the one people skip. The cap is a number: fees paid in the last twelve months, the total contract value, a fixed sum. The exclusions are a list of losses that fall outside the contract entirely, usually named as indirect, consequential, special, incidental — and, very often, lost profits and lost data.

A cap can be perfectly reasonable and still be worthless. If the exclusions remove the losses you would actually suffer, what remains inside the cap is a refund of what you already paid.

In plain language

“If this goes badly, the most I can get back is this number — and these kinds of loss do not count towards it at all.”

The Clause, As It Usually Arrives

Nothing below is unusual drafting. That is what makes it worth reading twice.

The wording

In no event shall either party be liable for any indirect, incidental, special, consequential or punitive damages, or any loss of profits, revenue, data or business opportunity, howsoever caused. Each party's total aggregate liability under this Agreement shall not exceed the fees paid in the three (3) months preceding the claim.

What it means once it is in force

The exclusion list is doing more work than the cap. For most software and service failures, the loss is lost revenue and lost data — so those are excluded before the cap is even reached. A three-month cap on an annual contract then limits the remainder to a quarter of one year's fees.

General information about a common drafting pattern, not legal advice about your document.

What Can Go Wrong

A cap so low that breaching the contract is cheaper than performing it.
Exclusions that remove precisely the loss the contract exists to prevent — data loss in a hosting agreement, lost revenue in an availability commitment.
A mutual-looking clause with an asymmetric effect: the customer's realistic loss is excluded, the supplier's realistic loss (unpaid fees) is not.
Carve-outs missing for the risks that should never be capped — death and personal injury, fraud, wilful misconduct, breach of confidentiality, and in many contracts the indemnities.
A cap measured against fees "paid" rather than "payable", which shrinks it at exactly the moment things go wrong early in a term.

Wordings Worth Stopping At

Search your own document for these before you read anything else in the clause.

"in no event shall … be liable for … loss of profits, revenue or data"

Named heads of loss inside the exclusion list are not boilerplate. Read them as a list of the things you cannot claim for.

a cap measured in months rather than in the contract term

Three months of fees on a multi-year commitment is a rounding error against the cost of a serious failure.

no carve-outs at all

Most jurisdictions will not enforce a cap over fraud or personal injury anyway. A clause that does not carve them out has not been read recently, which raises a question about the rest of the document.

indemnities not mentioned

Silence means the indemnity probably sits outside the cap. See the indemnification clause page — the two must be read together.

"aggregate liability" without a reset

One aggregate cap across a multi-year relationship means an incident in year one can consume the protection for years two and three.

Who It Protects

The supplier, usually It converts an unknown risk into a known, insurable number, which is what makes fixed-price work possible at all.

The customer, when it is drafted symmetrically A cap that both sides live under, with sensible carve-outs, prices the risk instead of hiding it.

Whoever wrote it More than most clauses, this one rewards the drafter. The exclusion list is written where nobody argues about it and is read only after something has gone wrong.

What Is Normally Negotiable

Raise the cap to twelve months of fees, or to the annual contract value. It is the most common commercial landing point, which makes it easy to ask for and hard to refuse.

Carve out confidentiality, data protection, IP infringement and the indemnities. These are the risks a cap should not be able to absorb, and they are usually accepted because they are already uninsurable inside the cap.

Delete "loss of data" from the exclusion list in any agreement where a party holds your data. Excluding the loss the service is meant to prevent leaves the promise unenforceable in the only way that matters.

Make the cap apply per claim, or reset annually. It keeps the protection alive for the whole term instead of exhausting it on the first incident.

Ask for the same cap on both sides. If the clause is fair, symmetry costs nothing. If symmetry is refused, the refusal tells you what the clause is really for.

How LegalValidate Reads a Limitation of Liability Clause

The review reads the whole document and reports six scores out of ten, each with the reasoning behind it. Here is where this clause shows up in that.

The analysis scores Risk Protection and Balance of Terms across the whole document, so a low cap or a wide exclusion list is reported with the reason, not just the number.
A cap paired with an uncapped indemnity is the combination most often missed by eye, because the two clauses are rarely on the same page. The reasoning describes the pair.
Where carve-outs are absent, the explanation says which ones are missing, so the point can be taken into a negotiation as a specific ask rather than a general worry.
The review reads what the document says. Whether a given cap is enforceable where you are is a question for a lawyer in that jurisdiction.

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Analysis Results

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Documents Where This Clause Matters Most

Each of these pages says what the review checks in that kind of agreement.

SaaS Agreement Review it free → Service Agreement Review it free → Vendor & Supplier Contract Review it free → Consulting Agreement Review it free →

Limitation of Liability Clause — Questions

What is a reasonable liability cap? +

There is no universal number, but twelve months of fees is the most common commercial landing point for services and software, with carve-outs for confidentiality, data protection, IP infringement and indemnities. Anything measured in weeks or months on a long contract deserves a question.

What are consequential damages, in plain terms? +

Losses that follow on from the direct problem rather than being the problem itself — the revenue you did not earn because the system was down, rather than the fee you paid for the system. They are excluded in most commercial contracts, which is precisely why the exclusion list matters more than the cap.

Can a limitation of liability clause be unenforceable? +

Yes. Many jurisdictions refuse to enforce limits on liability for death, personal injury or fraud, and some apply a reasonableness test to standard-form terms. A well-drafted clause carves those out itself rather than relying on a court to do it.

How can I see the cap in my own agreement? +

Upload it — the free review reads the cap and the exclusions together and explains what is left inside them. No account needed.