Limitation of Liability Clause
What it is
A limitation of liability clause caps the maximum financial exposure of one or both parties if something goes wrong. It typically appears alongside an indemnification clause and often excludes certain types of damages — like lost profits or consequential damages — entirely. The cap can apply symmetrically to both parties or only to one side.
Why it matters to you
Without a cap, a single mistake could expose you to damages far exceeding the value of the contract. With a cap that only protects the other side, you can be liable for unlimited damages while their exposure to you is capped. A well-negotiated limitation of liability clause is one of the best protections in any services contract — for both parties.
The aggressive version
This is one-sided limitation of liability language. The cap protects the client but leaves the contractor's exposure unlimited.
In no event shall Client be liable to Contractor for any indirect, incidental, special, consequential, or punitive damages, or for any loss of profits, revenue, data, or goodwill, regardless of the theory of liability. Client's total cumulative liability to Contractor under this Agreement shall not exceed the greater of One Thousand Dollars ($1,000) or the fees paid in the one (1) month preceding the claim. This limitation does not apply to Contractor's indemnification obligations.
What each part does to you
“In no event shall Client be liable”
This section applies only to Client's liability toward Contractor. It says nothing about limiting Contractor's exposure to Client.
“one (1) month preceding the claim”
Their cap is one month of fees — often a few thousand dollars. There is no corresponding cap on what you owe them.
“This limitation does not apply to Contractor's indemnification obligations”
Your indemnification exposure is explicitly excluded from the cap. The one clause with the highest financial risk has no limit.
The market standard version
A mutual limitation of liability protects both sides from exposure that exceeds what the contract is worth.
Except for obligations arising from a party's gross negligence or willful misconduct, neither party shall be liable to the other for indirect, incidental, consequential, special, or punitive damages. Each party's total aggregate liability under this Agreement shall not exceed the total fees paid by Client to Contractor in the twelve (12) months preceding the claim. This cap applies to all theories of liability including contract, tort, and indemnification.
Your counter-language
This version makes the cap mutual and closes the indemnification carve-out that creates unlimited exposure.
Neither party shall be liable to the other for indirect, incidental, consequential, or punitive damages arising from this Agreement, regardless of the theory of liability. Each party's total aggregate liability to the other shall not exceed the total fees paid under this Agreement in the twelve (12) months preceding the claim. This cap applies to all obligations under this Agreement, including indemnification, except for claims arising from a party's intentional wrongdoing or fraud.
What to ask for
“Can we make the liability cap mutual — the same limit that applies to you applies to me?”
“Can we include indemnification within the cap rather than carving it out as unlimited exposure?”
“Can we set the cap at total fees paid over the contract term rather than just the prior month?”
Related clauses and guides
Related clause
Indemnification Clause
An indemnification clause is a promise to cover the other party's losses if certain events occur.
Related clause
Warranty and Disclaimer Clause
A warranty clause defines what you promise about your work product: that it will function as described, be free from defects, or meet specific standards.
Learn guide
10 Red Flags to Watch For in Any Contract
10 contract red flags that lawyers spot and most people miss. From auto-renewals to indemnification traps — plain-English explanations and what to negotiate.
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Indemnification Clause Explained: What It Means and How to Negotiate
Indemnification clauses and hold harmless agreements explained in plain English. Learn what indemnify and hold harmless means, what's risky, and how to negotiate.
ClauseCheck is not a law firm and does not provide legal advice. The clause examples and counter-language on this page are illustrative only and are not a substitute for advice from a qualified attorney. Contract terms vary by context; consult a lawyer before making decisions on any specific agreement.
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