Limitation of Liability

Definition & Meaning:

Limitation of Liability is a legal clause found in agreements and contracts that restricts the amount or type of damages one party can recover from another in the event of a lawsuit.

This clause is designed to protect businesses and individuals from facing excessive losses due to legal claims.

For example, if you use a software service and it malfunctions, causing you to lose data, a limitation of liability clause in the service agreement might cap the compensation you can claim for your loss at the amount you paid for the service.

These clauses are common in various legal documents, including Terms and Conditions agreements for websites and software, service contracts, and product warranties.

They specify that the company or service provider cannot be held liable for indirect, incidental, consequential, or punitive damages that exceed a certain amount, regardless of the cause of action.

This means that even if you suffer a significant loss because of a product or service, the most you can usually claim in damages will be limited to what is outlined in the limitation of liability clause.

The rationale behind these clauses is to ensure that businesses can predict and limit their exposure to risk, making it feasible to offer products or services without the fear of crippling legal judgments.

However, for the consumer or user, it means there is a cap on the compensation they can receive, which might not always cover the full extent of their losses or damages.

It’s also worth noting that limitation of liability clauses are subject to legal scrutiny and must be reasonable and not violate public policy.

In some jurisdictions, these clauses cannot limit liability for gross negligence, intentional misconduct, or breach of specific statutory duties.