limitation of liability
Definition
A limitation of liability is a clause in a contract that caps how much money one party can be forced to pay the other if something goes wrong. For example, even if your mistake causes the other party to lose a million dollars, this clause might limit what they can actually collect from you to a much smaller amount, like the value of the contract itself.
Example
A web designer includes a limitation of liability clause in their contract stating that if the website crashes and causes the client to lose sales, the designer's total responsibility is capped at the amount the client paid for the project.
Watch Out
Courts sometimes throw out these clauses if they find them unreasonable or if gross negligence or intentional wrongdoing was involved, so a limitation of liability is not a guaranteed shield.
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.