Limitation of Liability (2024)

FAQs

What is an example of a limitation of liability provision? ›

A limitation of liability provision caps a party's damages. For example, damages resulting from defective dry cleaning are often limited to seven-to-ten times the charged cleaning cost rather than repair or replacement of the item.

Limitation of liability clauses limit the amount one party has to pay the other party if they suffer loss because of a contract between them. To be enforceable, limitation of liability clauses need to be reasonable and carefully drafted, so make sure you pay great attention to them whenever you enter into a contract.

A limitation of liability clause is a legal provision that limits the liability of one party in the event of damages, losses, or injuries caused to the other party.

A limitation of liability provision typically contains two parts: a waiver of damages and a liability cap. The waiver of damages clause typically limits a party's exposure only to direct damages (i.e., damages suffered by a party that naturally result from the breach of the other party).

The Limitations of Liability Act allows vessel owners to limit their liability after a maritime incident or casualty to the post-casualty value of the vessel and its cargo. The incident must happen in United States waters for the law to be used. The Act applies to many ships including: Seagoing vessels.

One of the most common and effective ways to negotiate a limitation of liability clause is to use a proportional approach, which means that the liability cap is based on a multiple of the fees paid by the client for your services.

Some question the enforceability of the provision especially if there is a wide gap between what a plaintiff would collect compared to the liability cap. The short of it is that limitations of liability are generally upheld and enforceable by the courts.

Examples of exclusions from limitations of liability include but aren't limited to losses and damages resulting from breaches of confidentiality, refusal of services, willful misconduct, bodily injury, death, damage to physical property, violations of applicable laws and gross negligence.

Generally, these clauses are enforceable. Parties can generally exclude their liability for certain acts or types of damages, as Linda explained.

This is because creditors and other stakeholders could claim the investors' and owners' assets if the company loses more money than it has. Limited liability prevents that from occurring, so the most that can be lost is the amount invested, with any personal assets held as off-limits.

What damages Cannot be limited by law? ›

There are certain acts that parties cannot limit liability for, such as instances of gross negligence, fraud, willful injury to persons or property, or violations of law whether the violations of law were intentional or not. Cal. Civ. Code § 1668.

Examples of provisions may include: warranty obligations; legal or constructive obligations to clean up contaminated land or restore facilities; and obligations caused by a retailer's policy to make refunds to customers.

A limitation of liability clause is a clause in a contract that restricts a company's financial exposure in the event of a lawsuit or another claim. A limitation of liability clause, if found to be enforceable, can “cap” the number of potential damages incurred.