limitation of liability
A contract clause that caps or excludes the amount one party can be required to pay the other if something goes wrong.
Definition
A limitation of liability clause sets a ceiling on damages, often by linking it to fees paid over a period, and may exclude certain types of loss such as lost profits. Agencies use it because a small fee could otherwise expose them to claims far larger than the work was worth. Clients should read it carefully, especially for work that carries high risk, such as handling data or media spend. Some liabilities cannot be limited by law, and rules vary by place. Negotiate the clause consciously rather than accepting defaults, and take legal advice.
In a sentence
The limitation of liability capped damages at the fees paid in the prior year.
The client asked for the cap to exclude data breaches.
