liability cap
Definition
A liability cap is a maximum dollar amount that one party can be forced to pay the other if something goes wrong under a contract. Both sides agree to this limit upfront, so neither party faces unlimited financial exposure no matter how bad the situation gets. Think of it as a ceiling on how much blame and money can land on your doorstep.
Example
You hire a software company to build your website, and the contract includes a liability cap equal to the amount you paid them, so if their faulty code crashes your store for a week, you can only recover that fee even if your actual losses were much higher.
Watch Out
If you are the one hiring a vendor or contractor, a low liability cap in their contract can leave you holding the bag for losses that far exceed what they will ever pay you back.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.