Limitation of Liability Clauses
The clause that caps how much you can recover — or how much you can lose.
What Is a Limitation of Liability?
A limitation of liability clause sets a ceiling on the amount one party can recover from the other if something goes wrong. It often appears as a simple sentence, but its impact can be enormous.
Example
"In no event shall either party's aggregate liability under this Agreement exceed the total fees paid by Client during the twelve (12) months preceding the claim."This means if your vendor causes $500,000 in damages but you only paid them $10,000, your maximum recovery is $10,000.
When It's Standard
Liability caps are common and often reasonable. They appear in virtually every:
A liability cap equal to total fees paid or 12 months of fees is generally industry-standard.
When It's Dangerous
Unreasonably low cap
A cap of "fees paid in the prior month" on a $500/month contract means your maximum recovery is $500 — regardless of damage caused.
Covers willful misconduct
Most well-drafted clauses carve out intentional wrongdoing. If the clause doesn't, the other party could act recklessly with minimal consequences.
One-sided cap
Only your liability is capped but the other party's is not — or vice versa — creating unfair risk allocation.
Excludes consequential damages
Prevents you from recovering lost profits, lost data, or business interruption costs — which are often the real damages.
What to Negotiate
Raise the cap
Negotiate for 2x or 3x annual fees, or a fixed dollar amount that reflects realistic risk.
Carve out key exclusions
Ensure willful misconduct, gross negligence, confidentiality breaches, and IP infringement are excluded from the cap.
Make it mutual
If the liability cap applies to you, it should apply to them too — and at the same level.
Preserve consequential damages
Even if general consequential damages are excluded, negotiate carve-outs for data breaches, confidentiality violations, and IP infringement.
Require insurance
Require the other party to carry insurance sufficient to cover the types of losses they might cause.
Oklahoma Note
In Oklahoma, contractual limitations of liability are generally enforceable between sophisticated commercial parties. However, courts may refuse to enforce a limitation that is unconscionable or attempts to limit liability for intentional torts or violations of public policy.
Key Takeaway
A well-drafted limitation of liability protects both parties. A poorly drafted one can leave you with no meaningful remedy when you need it most. Always read this clause carefully and negotiate it — it is rarely non-negotiable.
Questions About Your Legal Matter?
These resources provide general information. For guidance specific to your situation, contact Addison Law Firm.
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