Contract clause

Limitation of Liability Clause Explained

A limitation of liability clause caps how much one party can recover if something goes wrong.

Plain English meaning

This clause puts a ceiling on damages. It might cap recovery at fees paid, one month of charges, or a fixed dollar amount. It may also exclude categories like lost profits, consequential damages, or punitive damages.

Why it matters

Your real loss may be much higher than the cap.
Important claims may be carved out from the cap.
It often works together with indemnification and warranty disclaimers.

Where it appears

Software contracts
Service agreements
Phone plans
Insurance-related agreements
Vendor contracts

Watch for

Caps lower than realistic harm
No carveout for confidentiality breaches
Exclusion of consequential damages
One-sided caps

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Common questions

Can liability be limited to fees paid?

Yes, many contracts cap liability at the amount paid under the contract, though enforceability can depend on law and context.

What damages are usually excluded?

Contracts often exclude indirect, incidental, consequential, special, punitive, or lost-profit damages.