What does a limitation of liability clause mean?

It sets the most one party can recover from the other under the contract, and usually excludes some kinds of loss altogether, such as lost profits and other consequential damages. Most such clauses have a cap on the amount and a list of claims the cap does not cover.

What is a reasonable liability cap in a service agreement?

For a small services firm, a common ask is the fees paid and payable in the 12 months before the claim, the same for both sides, with a fixed floor for small projects. Check the figure against your professional liability insurance before you offer it.

Are limitation of liability clauses enforceable?

Between businesses in the U.S., courts generally enforce them when they are clear and not unconscionable. They usually will not shield a party from its own fraud or intentional harm, and many states treat gross negligence the same way. In the UK, a limit must pass the reasonableness test of the Unfair Contract Terms Act 1977.

What are carve-outs in a limitation of liability clause?

Carve-outs are claims the cap does not limit. Fraud, willful misconduct, gross negligence and unpaid fees are usual. A carve-out for "any breach of this Agreement" or for all indemnities removes the cap in practice, so offer a higher cap for those claims instead.

A super-cap is a second, higher ceiling for a few risks, often data breaches, confidentiality and IP indemnity, set at two or three times the main cap. It lets a client's legal team cover the risks it worries about without leaving them unlimited.

Should the liability cap be mutual?

Yes, as a starting point. A cap that protects only the client leaves the provider's exposure open, and a mutual cap is easier for both legal teams to accept because neither side is asking for something it will not give.

Does a liability cap cover unpaid invoices?

It should not. Write the client's duty to pay fees as an excluded claim, so the cap never limits what the client owes you for work done.

Limitation of liability clause: example, meaning

What a limitation of liability clause means, in plain words#

Most of these clauses do two things.

The cap. A ceiling on the total money one party can recover from the other: “the fees paid in the 12 months before the claim,” or a fixed dollar figure. Without one, a $40,000 project can carry a claim for whatever a court finds the client lost.

The damages exclusion. A list of losses neither side will pay at all, usually indirect, incidental, special, consequential and punitive damages, and lost profits. Consequential damages are harm that follows from a breach rather than the breach itself:¹ the sales a client says it lost while a site you built was down, as opposed to the cost of fixing the site.

Between businesses, courts in the U.S. generally enforce both parts, with limits. For sales of goods, the Uniform Commercial Code says consequential damages “may be limited or excluded unless the limitation or exclusion is unconscionable,” and that a limit on commercial loss is not presumed unconscionable.² A services contract falls under common law rather than the UCC, but courts ask similar questions. No clause you can count on caps your own fraud or intentional harm: California’s Civil Code, for one, makes a contract that exempts anyone “from responsibility for his own fraud, or willful injury” against public policy.³ Many states treat gross negligence the same way.

UK note: under the Unfair Contract Terms Act 1977 no contract can limit liability for death or personal injury caused by negligence, and any other limit on negligence must pass a reasonableness test.⁴

How the cap is built, and what each choice means for you#

What	What clients often write	What protects a services firm
The base	Total contract value, or no cap	Fees paid and payable in the 12 months before the claim, or a fixed floor if the project is small
Per claim or in total	Per claim, so ten claims mean ten caps	In total, for all claims under the agreement
Who is capped	Only the provider	Both parties, the same figure
Fees owed	Counted against the cap	Unpaid fees are owed in full and outside the cap
Carve-outs (no cap)	Any breach of confidentiality, data, indemnities, “any breach”	Fraud, willful misconduct, gross negligence, unpaid fees
Super-cap (a higher cap)	Rarely offered	Two or three times the main cap, for data, confidentiality and IP indemnity claims

Two choices in that table cost firms the most. The first is the carve-out list: each item on it is a claim with no ceiling, so a long list turns a cap into a formality. The second is “per claim”: a client with a grievance can split it into several claims, each under its own ceiling.

Before you name a figure, look at your insurance. A cap you cannot pay is a cap only on paper; a cap at or under your professional liability limit is one your insurer stands behind. Ask your broker what your policy covers before you agree to anything above it.

A limitation of liability clause example, as a client sends it#

Client's version

IN NO EVENT SHALL CLIENT BE LIABLE TO PROVIDER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES, OR FOR ANY AMOUNT IN EXCESS OF THE FEES PAID UNDER THE APPLICABLE STATEMENT OF WORK IN THE THREE (3) MONTHS PRECEDING THE CLAIM. THE FOREGOING LIMITATIONS SHALL NOT APPLY TO PROVIDER'S BREACH OF THIS AGREEMENT, PROVIDER'S INDEMNIFICATION OBLIGATIONS, OR ANY CLAIM ARISING FROM PROVIDER'S NEGLIGENCE.

The cap and the exclusion protect only the client. Your exposure has no ceiling, and the carve-out for “Provider’s breach of this Agreement” would make sure of that even if the clause were mutual. Ordinary negligence is carved out too, and most claims against a services firm are claims of negligence. The capital letters have a reason: U.S. law asks for some limits to be conspicuous, such as a written disclaimer of implied warranties under the UCC,⁵ so lawyers print the whole section that way. Keep the capitals in your counter.

The counter a services firm sends back#

Counter-wording: cap, exclusion and carve-outs

EXCLUSION. EXCEPT FOR THE EXCLUDED CLAIMS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR FOR LOST PROFITS, REVENUE OR DATA, HOWEVER CAUSED.

CAP. EXCEPT FOR THE EXCLUDED CLAIMS AND THE SPECIAL CLAIMS, EACH PARTY'S TOTAL AGGREGATE LIABILITY FOR ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL NOT EXCEED THE GREATER OF (A) [$50,000] OR (B) THE FEES PAID AND PAYABLE TO PROVIDER UNDER THIS AGREEMENT IN THE TWELVE (12) MONTHS BEFORE THE FIRST EVENT GIVING RISE TO LIABILITY.

SPECIAL CLAIMS. EACH PARTY'S TOTAL AGGREGATE LIABILITY FOR BREACH OF ITS CONFIDENTIALITY OR DATA PROTECTION OBLIGATIONS AND FOR ITS INDEMNIFICATION OBLIGATIONS SHALL NOT EXCEED [TWO (2)] TIMES THE AMOUNT IN THE CAP ABOVE.

EXCLUDED CLAIMS means a party's fraud, gross negligence or willful misconduct, and Client's obligation to pay fees owed under this Agreement, none of which is limited by this Section.

What each part does for you:

“The greater of” keeps a floor under the cap when the project is small or just started.
“Total aggregate” and “the first event” stop a claim from being split, or dated to the month with the highest fees.
“Special claims” gives the client’s legal team the bigger number it wants, for data and IP, without an unlimited one.
“Excluded claims” stays short, and unpaid fees sit there, so a client cannot argue the cap limits what it owes you for work done.

If the client will not accept a mutual cap, ask why their risk is different from yours. A client whose own data or systems could hurt you (their code in your test environment, their customer list in your campaign tool) has no better claim to an uncapped position than you do.

What the redline looks like in their Word file#

With track changes on in the client’s own file:

Struck: “CLIENT SHALL BE LIABLE TO PROVIDER.” Inserted: “NEITHER PARTY SHALL BE LIABLE TO THE OTHER.”
Struck: “IN THE THREE (3) MONTHS PRECEDING THE CLAIM.” Inserted: “IN THE TWELVE (12) MONTHS BEFORE THE FIRST EVENT GIVING RISE TO LIABILITY,” with “the greater of [$50,000] or” placed before the fees.
Struck: the whole sentence beginning “THE FOREGOING LIMITATIONS SHALL NOT APPLY.” Inserted: the “Special claims” and “Excluded claims” paragraphs of the counter.
Comment beside the first change: “Mutual: the same cap and exclusion for both sides.”
Comment beside the carve-outs: “Fraud, gross negligence and willful misconduct stay uncapped. Data, confidentiality and indemnities move under a cap at twice the main one, instead of no cap.”

Leave their section numbers, defined terms and capitals as they are. A redline that also reformats the clause makes their lawyer read every word twice.

The email that sends it#

The email that sends your liability counter

To your contact; Cc their legal team if you have the address. Attach their Word file with the changes tracked.

Subject: [Project] MSA: our change to the liability section

Hi [Name],

Thanks for the MSA. Our changes are tracked in your file, and the one that matters most to us is the limitation of liability in section [number].

As drafted, it caps your liability and leaves ours open. We have made it mutual: the same cap for both sides, set at the greater of [$amount] or 12 months of fees, which is the usual shape in services contracts.

We know data and confidentiality matter to your team, so instead of leaving them uncapped we have put them under a higher cap of [two] times that figure. Fraud, gross negligence and willful misconduct stay uncapped.

Our insurance stands behind those figures, which is why we can offer them.

If it helps, I can join a 15-minute call with [their counsel's name or "your legal team"] on [day] or [day].

[Your name]

How Tommo Legal reads the liability clause on your deals#

Tommos (tommos.ai) is a CRM whose AI agents, the tommos, take a B2B inquiry to a signed contract. Its Sign plan, $899 a month for the firm, includes Tommo Legal.

You write your positions once on Tommo Legal’s page: your cap, the carve-outs you accept, your super-cap. When a client’s MSA arrives on a deal, Tommo Closer hands it to Tommo Legal, which marks only the places where their paper departs from those positions. A one-way cap like the example above becomes a row in the clause memo: the client’s words with their section, the position it breaks, what it would cost you, the counter-wording ready to paste, how sure Tommo Legal is, and whether the point is worth a lawyer. When their paper is a Word file, the same changes are tracked in that file, kept beside their original in the client’s folder in your Google Drive.

You accept, change or drop each point on the card; Tommo Legal never writes to the client, and Tommo Closer carries the points you accepted. Tommo Legal also drafts your SOW and NDA from your templates. Once the paper is agreed, a person you allow to sign presses Sign on the card and the signature goes on; the copy both sides signed is filed in the client’s folder. Later, Tommo Closer reads that signed paper to propose the invoice schedule, and a person approves each invoice. The memo is research, not legal advice.

What Tommo Legal does · Every plan · Up: the full MSA review

The cap is one of ten clauses to check. Get the one-page MSA checklist with a fair counter for each.

Questions about limitation of liability clauses#

What does a limitation of liability clause mean?: It sets the most one party can recover from the other under the contract, and usually excludes some kinds of loss altogether, such as lost profits and other consequential damages. Most such clauses have a cap on the amount and a list of claims the cap does not cover.
What is a reasonable liability cap in a service agreement?: For a small services firm, a common ask is the fees paid and payable in the 12 months before the claim, the same for both sides, with a fixed floor for small projects. Check the figure against your professional liability insurance before you offer it.
Are limitation of liability clauses enforceable?: Between businesses in the U.S., courts generally enforce them when they are clear and not unconscionable. They usually will not shield a party from its own fraud or intentional harm, and many states treat gross negligence the same way. In the UK, a limit must pass the reasonableness test of the Unfair Contract Terms Act 1977.
What are carve-outs in a limitation of liability clause?: Carve-outs are claims the cap does not limit. Fraud, willful misconduct, gross negligence and unpaid fees are usual. A carve-out for "any breach of this Agreement" or for all indemnities removes the cap in practice, so offer a higher cap for those claims instead.
What is a super-cap?: A super-cap is a second, higher ceiling for a few risks, often data breaches, confidentiality and IP indemnity, set at two or three times the main cap. It lets a client's legal team cover the risks it worries about without leaving them unlimited.
Should the liability cap be mutual?: Yes, as a starting point. A cap that protects only the client leaves the provider's exposure open, and a mutual cap is easier for both legal teams to accept because neither side is asking for something it will not give.
Does a liability cap cover unpaid invoices?: It should not. Write the client's duty to pay fees as an excluded claim, so the cap never limits what the client owes you for work done.

Key takeaways#

The clause has two parts: a cap on the amount, and an exclusion of indirect losses such as lost profits.
Ask for a mutual cap at the greater of a fixed floor or 12 months of fees, in total for all claims.
Keep carve-outs to fraud, gross negligence, willful misconduct and unpaid fees.
Offer a super-cap at two or three times the cap for data, confidentiality and indemnities, rather than no cap.
Match the figure to your insurance, and keep the clause in capitals.

This is not legal advice; rules on caps differ by state and country, so for a large deal ask a lawyer licensed where the contract is governed.

Sources#

Cornell Law School, Legal Information Institute, Wex, “consequential damages”, read Oct 13, 2026
Uniform Commercial Code § 2-719(3), Cornell LII, read Oct 13, 2026
California Civil Code § 1668, read Oct 13, 2026
Unfair Contract Terms Act 1977, section 2, read Oct 13, 2026
Uniform Commercial Code § 2-316(2), Cornell LII, read Oct 13, 2026

The limitation of liability clause: an example for services firms, and the counter to send