Limitation of liability clause

Definition[]

A limitation of liability clause permits contracting parties to reduce or eliminate the potential for direct, consequential, special, incidental and indirect damages should there be a breach of contract. In some cases, a cap on damages may be used.

Overview[]

Such limitations may include:

excluding indirect and consequential losses (such as data loss)
setting low liability caps (typically equivalent to one year's fees under the agreement) or in some cases excluding liability entirely
not excluding key types of liability from any liability cap.

Uniform Commercial Code[]

The U.C.C. does not contain a requirement that the damage limitations clause be conspicuous. Nevertheless, using capitalization and boldface type may avoid an argument that the limitation was hidden.

Issues to be examined[]

When evaluating the liability limitations contained in a vendor's agreement, consumers should:

Carefully review the vendor's aggregate liability, since this amount differs across vendors.
Ensure that the disclaimers exclude cases where the vendor is negligent.
Compare the indemnification and disclaimer clauses to ensure there are not significant differences between vendors.
Verify that the indemnification clause is reciprocal.

The parties should also consider carefully whether any of these should be exempt from a liability cap:

personal injury (including sickness and death)
loss or damage to tangible property
breach of privacy, security or confidentiality obligations
intellectual property infringement
unlawful, or illegal, acts or omissions.

Sample clause[]

“

IN NO EVENT WILL COMPANY BE LIABLE TO YOU FOR ANY LOST PROFITS, LOST SAVINGS OR INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF YOUR USE OR INABILITY TO USE THE PRODUCT OR THE BREACH OF THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.

”

Source[]

"Issues to be considered" section: Public Cloud Service Agreements: What to Expect and What to Negotiate, at 10.
"Issues to be considered" section: Negotiating the Cloud–Legal Issues in Cloud Computing Agreements, at 11-12.
"Overview" section: Id. at 11.