Limitation of liability explained
Don't sign blind.
A limitation of liability clause caps one or both parties' exposure to a stated dollar amount or formula. Common in vendor, SaaS, and commercial contracts. The negotiation is around the cap, mutuality, and carve-outs.
No account requiredFile deleted after analysisNot legal advice
What it usually means
A limitation of liability clause caps the maximum amount one party can recover for a breach. Common formulas include fees paid in the prior 12 months, the contract value, or a stated dollar amount. "Indirect and consequential damages" are often excluded.
Why it matters before signing
An asymmetric or unusually low cap can leave you exposed when something goes wrong. The cap and the carve-outs (e.g., IP infringement, confidentiality breach, data breach, gross negligence) decide what is actually recoverable.
What to ask before signing
- Is the cap mutual?
- How does the cap compare to the value at risk?
- What carve-outs sit outside the cap (IP infringement, confidentiality, data breach, willful misconduct)?
How Dang catches it
Dang's vendor and SaaS engines flag uncapped liability and one-sided caps. Commercial-lease engine flags missing limitation language for tenant exposure.
Frequently asked questions
What's a reasonable cap?
Common pattern in B2B vendor contracts caps liability at fees paid in the prior 12 months, with named carve-outs for IP, confidentiality, and data breach.
What are "consequential damages"?
Indirect losses (lost profits, lost data) caused by a breach. Most contracts exclude consequential damages from recoverable amounts.
Does the cap apply to indemnification?
Often carved out, leaving indemnification exposure unbounded. Worth negotiating.
Sources & further reading
No account required · File deleted after analysis · Not legal advice. Dang reports contract findings in plain English. For consequential decisions, consult a licensed attorney in your state.