Glossary
Limitation of liability
Short answer
A limitation of liability clause caps or excludes the damages a party can owe under a contract, typically by setting a maximum amount, such as fees paid in the previous 12 months, and by excluding indirect or consequential loss. It usually carves out items such as fraud, which the law may not allow to be limited.
By Pactinel editorial teamReviewed on October 22, 2026
This clause often decides how much a breach is worth, so it is among the first clauses reviewed in negotiation and due diligence.
Typical structure
| Element | Example |
|---|---|
| Cap | Fees paid or payable in the 12 months before the claim |
| Exclusion | Indirect, consequential or lost-profit damages |
| Carve-outs | Fraud, intentional misconduct, death or personal injury where the law requires |
| Super-cap | Higher cap for data breach or confidentiality breach |
| Mutual or one-sided | Applies to both parties or only the supplier |
Example
Annual fees are USD 120,000, and the cap is 12 months of fees. A service failure causes USD 500,000 of customer loss. The supplier's maximum liability is USD 120,000, and any claim above that fails unless a carve-out applies.
Interactions
- Service credits are often the sole remedy for SLA misses and may count toward the cap.
- Indemnities are sometimes outside the cap.
- Rules on what may be limited differ by country, and some jurisdictions restrict limits in standard terms.
Check these links before relying on a figure. See SLA.
This is general information, not legal advice.