Limitation of Liability
A cap on how much a party can owe if things go wrong.
What it means
A limitation of liability clause caps what a party can be required to pay if it breaches the contract or causes harm — often to the fees paid under the contract, or a fixed dollar amount. It frequently also excludes whole categories of damages, such as lost profits or other 'consequential' damages. Courts usually enforce these caps between businesses, with exceptions that vary by state.
Why it matters before you sign
If the other side's liability is capped at the price of the contract but your real exposure is much larger, you — or your insurance — are absorbing the difference.
In a contract, it looks like this
Neither party's total liability under this agreement will exceed the amounts paid in the twelve months before the claim, and neither party is liable for lost profits.
This definition is a general, educational explanation — not legal advice. XOsign provides AI-assisted document tools and does not provide legal advice; consider consulting a qualified attorney for guidance on your specific situation. Requirements vary by state.
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