# Limitation of Liability Clause

Source: https://contracko.com/clause-library/limitation-of-liability

# Limitation of Liability Clause

Caps the amount and types of damages a party can be liable for, and excludes certain categories of loss.

## What it is

A limitation of liability clause caps total liability (often at fees paid) and excludes categories such as indirect or consequential loss and lost profits. It is the primary tool for keeping contractual risk proportionate to deal value.

## Why it matters

Uncapped liability can vastly exceed contract revenue and make a deal uninsurable. A balanced cap allocates risk predictably; courts may, however, set aside a cap that is unreasonably onerous or invoked in case of intent or gross negligence.

## How to apply it

- Set an aggregate cap, commonly tied to fees paid over a defined period.
- Exclude indirect and consequential loss, defining those terms clearly.
- Carve out liabilities that cannot or should not be capped (e.g. intent, IP, data).
- Make the cap mutual where bargaining power is balanced.

## Sample wording

> Each party's total aggregate liability under this Agreement shall not exceed the fees paid in the twelve months preceding the event giving rise to the claim. Neither party is liable for indirect or consequential loss.

## Negotiation tips

- • Recipients of the cap should carve out IP, confidentiality, data and personal-injury claims.
- • Tie the cap to a multiple of annual fees if a single year is too low.

## Common pitfalls

- • Attempting to exclude liability for intent or gross negligence, which is usually unenforceable.
- • Leaving "consequential loss" undefined, inviting argument over what is excluded.

### How Contracko helps

When a claim arises, you need to know fast what your liability cap is and which carve-outs apply. Contracko keeps every contract in one searchable repository and its AI review extracts cap amounts and excluded-loss categories, flagging clauses that attempt to exclude intent or leave consequential loss undefined. That gives your team an instant, accurate picture of exposure across your entire portfolio.

## Legal references

- [BW 6:74 Damages for non-performance Dutch law](https://wetten.overheid.nl/BWBR0005289)
- [BW 6:233 Unreasonably onerous standard terms Dutch law](https://wetten.overheid.nl/BWBR0005289)
- [BW 6:248 Reasonableness and fairness limit on reliance Dutch law](https://wetten.overheid.nl/BWBR0005289)

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

## Relevant for

[Software & SaaS](https://contracko.com/industries/software-saas)[IT Services](https://contracko.com/industries/it-services)[Consulting](https://contracko.com/industries/consulting)[Engineering & Architecture](https://contracko.com/industries/engineering)[Financial Services](https://contracko.com/industries/financial-services)

## Related clauses

- [Indemnification Clause](https://contracko.com/clause-library/indemnification)
- [Warranties Clause](https://contracko.com/clause-library/warranties)
- [Force Majeure Clause](https://contracko.com/clause-library/force-majeure)

## Related terms

- [Liability](https://contracko.com/glossary/liability)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)
- [Boilerplate](https://contracko.com/glossary/boilerplate)

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## Frequently asked questions

Common questions about this clause.

- **Q:** Can you exclude all liability in a Dutch contract?
  **A:** No. Exclusions for intent or deliberate recklessness, and unreasonably onerous caps, can be set aside under BW 6:248 and BW 6:233.

- **Q:** What is a typical liability cap?
  **A:** Often the fees paid over the prior 12 months, though high-value or high-risk deals use multiples or separate caps for specific claims.

- **Q:** Is the liability cap mutual?
  **A:** Not automatically. Both parties should consider whether the cap should apply equally or whether one side, for example a data processor, warrants a different cap.

- **Q:** Do carve-outs from the cap increase risk for the capped party?
  **A:** Yes. Each carve-out, such as for IP infringement, data breaches or fraud, leaves the capped party with potentially unlimited exposure for those specific claims.

- **Q:** What is the difference between direct and consequential loss?
  **A:** Direct loss flows naturally from the breach itself; consequential loss is indirect, for example lost profits or third-party claims. Many clauses exclude consequential loss, which is why defining the term precisely matters.

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