What is limitation of liability?

Limitation of liability is contract language that may cap, limit, or exclude certain types of responsibility if something goes wrong. It often appears in service agreements, software contracts, vendor terms, consulting agreements, and small business contracts.

This guide is general information only, not legal advice. It explains what to locate when you see a limitation of liability clause.

Where limitation of liability appears

Look for headings like "Limitation of Liability," "Disclaimer of Damages," "Cap on Liability," "Exclusion of Damages," or "Liability." The clause may be near warranty, indemnity, insurance, or dispute terms.

Details to locate

• Whether there is a dollar cap or formula
• Whether the cap is tied to fees paid under the contract
• Which types of damages are excluded
• Whether indirect, consequential, incidental, special, punitive, lost profits, or lost revenue damages are mentioned
• Whether any claims are excluded from the cap
• Whether indemnity, confidentiality, payment, or IP claims are treated differently

Why it may matter

This clause can affect the range of losses the contract discusses if a dispute arises. It can also interact with indemnity, insurance, warranties, and confidentiality obligations.

Questions to ask before signing

• Whether the liability cap is stated clearly
• Whether the cap applies to both parties or only one party
• Whether certain claims are carved out of the cap
• Whether the contract excludes categories of damages