# Liability

Source: https://contracko.com/glossary/liability

# Liability

Legal responsibility to compensate another party for loss caused by an act or omission.

## Definition

Liability is the obligation to make good the loss another party suffers as a result of breach, negligence, or another wrongful act. In contracts it is often capped or excluded for certain categories such as indirect or consequential loss, although caps on intent or gross negligence are usually unenforceable. Under Dutch law contractual liability flows from article 6:74 and non-contractual (tort) liability from 6:162.

## Example

> A contract limits the supplier's total liability to the fees paid in the prior year, but carves out fraud and personal injury.

## Why this is a business risk

Unmanaged liability exposure is one of the most common causes of business-ending disputes. An uncapped indemnity or an overlooked carve-out can leave a company responsible for losses far exceeding contract value. Equally, an over-broad exclusion may be unenforceable, leaving you without the protection you assumed you had.

## How to manage it

- Set a liability cap in every commercial contract: a figure tied to contract value or annual fees is common and gives both sides predictability.
- List the categories excluded from the cap (fraud, wilful misconduct, death, personal injury) to ensure those carve-outs are intentional, not accidental.
- Match your liability exposure to your insurance cover; if a cap exceeds your policy limit, your insurer will not fill the gap.
- Review limitation clauses in supplier contracts as carefully as your own: a supplier's narrow cap may leave you uncompensated for your actual loss.

### How Contracko helps

Contracko's AI review surfaces liability caps, carve-outs, and uncapped indemnities across your contract portfolio so you can spot where exposure is concentrated. Batch extraction lets you pull these figures into a report for risk or finance teams without manually opening every document.

## Legal references

- [BW 6:74 Dutch Civil Code: contractual liability Dutch law](https://wetten.overheid.nl/BWBR0005289)
- [BW 6:162 Dutch Civil Code: tort 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)[Construction](https://contracko.com/industries/construction-industry)[Insurance](https://contracko.com/industries/insurance)[Engineering & Architecture](https://contracko.com/industries/engineering)

## Related clauses

- [Limitation of Liability Clause](https://contracko.com/clause-library/limitation-of-liability)
- [Indemnification Clause](https://contracko.com/clause-library/indemnification)
- [Warranties Clause](https://contracko.com/clause-library/warranties)

## Related terms

- [Indemnity](https://contracko.com/glossary/indemnity)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)
- [Warranty](https://contracko.com/glossary/warranty)
- [Force majeure](https://contracko.com/glossary/force-majeure)

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## Frequently asked questions

Common questions about this term.

- **Q:** Can a contract exclude all liability?
  **A:** No. Under Dutch law an exclusion or cap that would cover the party's own intent or gross negligence is generally void as contrary to reasonableness and fairness.

- **Q:** What is consequential loss and why is it often excluded?
  **A:** Consequential loss is indirect harm flowing from a breach, such as lost profits or reputational damage. It is often excluded because it can far exceed the contract value, making it difficult to price and insure.

- **Q:** Is liability for data breaches usually capped?
  **A:** Suppliers often seek to cap it; customers and regulators push back because GDPR fines and notification costs can be very large. The carve-out for data protection obligations is a key negotiation point in technology contracts.

- **Q:** Can a liability clause protect a party from tort claims as well?
  **A:** It depends on drafting and jurisdiction. Under Dutch law, contractual caps can in principle also apply to concurrent tort claims between the same parties, but courts scrutinise this carefully.

- **Q:** How is gross negligence treated in Dutch liability clauses?
  **A:** Excluding or capping liability for a party's own gross negligence is generally void under Dutch law as contrary to reasonableness and fairness, so clauses should carve it out explicitly.

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