Limitation of Liability Clause

What is a limitation of liability clause?

A limitation of liability clause is a contractual provision that restricts the type and amount of liability that one party (the offending party) assumes when it directly or indirectly causes another party (the injured party) to experience losses in connection with their contractual relationship. In other words, when something bad happens to the injured party and the offending party is to blame, the limitation of liability clause establishes how much the offending party has to pay the injured party as compensation. As the examples below illustrate, it typically does this by limiting (i) the class of recoverable damages and (ii) the total amount of compensation payable by the offending party for any claim. The limitation of liability clause is, thus, a mechanism for allocating risk. That is, both the offending party and injured party agree to shoulder the total cost of various risks inherent in the contractual relationship, and the limitation of liability clause clarifies the extent of each party’s financial exposure in this respect.

Why does the limitation of liability clause matter?

To illustrate the importance of the limitation of liability clause, let’s consider the following scenarios:

  1. An appliance manufacturer enters into a contract with a supplier of conveyor systems to purchase a new automated system for a critical assembly line. Under the contract, the supplier agrees to deliver and install the conveyor system at the manufacturer’s facility. After a few weeks of operation, an installation error causes the new system to seize up, forcing a shutdown of the assembly line. The repairs take longer than expected and the prolonged shutdown results in, among other things, (a) delays in shipping the appliance manufacturer’s products to existing customers, (b) additional inventory storage costs, and (c) lost opportunities to secure new supply contracts.
  2. A multinational medical device maker contracts with a developer to build a new manufacturing plant in Mexico, but the developer fails to complete construction on time. The device maker ultimately has to hire additional help to finish the project, which happens almost a year behind schedule. The delay in opening the new facility results in, among other things, (a) reallocation of device production originally scheduled for the new facility to other facilities, (b) increases in overtime costs, shipping costs and planning costs as a result of (a), (c) significant storage costs for the fixtures and equipment to be installed at the new facility, and (d) lost opportunities for new business due to insufficient production capacity.

As the above scenarios show, defects in performance can have significant knock-on effects that generate economic costs far in excess of the value obtained from the contract itself. If the conveyor system supplier and the developer had to compensate customers for their total economic loss (including collateral losses from things like lost revenues, lost business opportunities, etc.) every time something went wrong with one of their contracts, they could soon find themselves in serious financial trouble. In fact, for any business, the potential financial exposure could be so great that it might ultimately be discouraged from entering into otherwise beneficial legal relationships. By allowing parties to limit the scope and amount of their financial risk, the limitation of liability clause helps remove barriers to contracting.

A key issue for businesses to be mindful of when it comes to limitation of liability clauses is enforceability. The enforceability of a limitation of liability clause often turns on the reasonableness of its terms, and applicable law will dictate the parameters of what is “reasonable” in this respect. This is to prevent, for example, parties in a superior bargaining position from exploiting this fact and using the clause to absolve themselves of financial responsibility to an unfair (or even unconscionable) degree. If a limitation of liability clause is held to be unenforceable, an offending party may find itself saddled with a significant financial burden well beyond anything it had anticipated.

Accordingly, the limitation of liability clause tends to be one of the more heavily negotiated and carefully drafted terms of a contract. However, because this clause is meant to address unintended and unexpected outcomes, parties may forget about it after the contract is signed. Indeed, they may never have a need for it. Only when a problem arises do they return to the contract to figure out how much the offending party owes the injured party, and, at that time, issues of interpretation and enforceability may again become the subject of debate. As a precautionary measure, therefore, businesses would be well advised to pay careful attention to the details of any limitation of liability clauses in their contracts to ensure they have a firm understanding of (i) how it affects their own financial exposure should they find themselves in the position of either offending party or injured party and (ii) whether any developments in applicable law may affect its enforceability.

How do you review the limitation of liability clause in contracts?

In many agreements, the limitation of liability clause appears in its own section, making it relatively easy to find. As the examples below illustrate, the section heading for this clause will typically be “Limitation of Liability” or some variation thereof. An agreement may further subdivide the limitation of liability clause into its component parts, such as limitation on loss, waiver or disclaimer of certain damages, etc. (see, for instance, examples 3 and 5 below). Note that other sections of the agreement may also contain limitation of liability clauses, which can be easy to overlook. For instance, in example 7 below (which is from the same agreement as example 6 below), a limitation of liability clause appears in the middle of a warranty.

After locating all the limitation of liability language in each agreement, key things to focus on when reviewing these provisions include:

  1. What losses are limited. A limitation of liability clause will often specify categories of losses for which an offending party will not be responsible. As the examples below illustrate, exempted losses may include lost profits, lost savings, lost data, and loss of goodwill as well as incidental, special, consequential, punitive and indirect damages. Recoverable losses will often be limited to those directly connected with the harm caused by the offending party’s breach of the contract (or by any other matter specified in the clause). This means that the injured party would typically be entitled to direct damages in an amount equal to the difference between the value of the performance received and the value of the performance promised under the contract. Reviewers should pay particular attention to limitation of liability clauses that do not contain one or more of these common limitations - particularly those related to indirect, consequential, etc. damages - as this may pose a significant financial risk to any offending party.
  2. Caps on liability. The limitation of liability clause may also impose a cap on the amount of losses for which an offending party is responsible. The liability cap may be stated in terms of the consideration paid under the contract for products or services (see, for instance, examples 2, 5 and 6 below), in which case it will be necessary to review the contract’s pricing terms and possibly invoices or other payment records showing amounts actually paid to ascertain the amount of the cap. Alternatively, the liability cap may be a fixed amount, such as the £1 million limit on damage or loss related to tangible property in example 2 below. Reviewers should pay particular attention to limitation of liability clauses without a cap on liability, as this may pose a significant financial risk to any offending party.
  3. Carve outs. Just as important as knowing what losses are limited by the limitation of liability clause is knowing what losses are not limited. That is to say, liability arising from certain specified matters may be expressly excluded (or carved out) from the limitation of liability clause, in which case the offending party would be fully liable to the injured party without the protection of that clause. As the examples below illustrate, carve outs may include those for liability arising from or out of (i) breach of confidentiality obligations, (ii) breach of statutory obligations, (iii) personal injury or death due to negligence or wilful misconduct, (iv) fraud, and (v) indemnification obligations.
  4. Who benefits from the limitations. The limitation of liability clause may be mutual (i.e., each party is protected from liability for certain losses claimed by any other party) or unilateral (i.e., only one party is protected from liability for certain losses). Examples 1 and 2 below, for instance, contain mutual limitations of liability, and examples 3, 4 and 5 contain unilateral limitations of liability. If the obligations of any party are guaranteed under the agreement, be sure to check whether the limitation of liability clause applies to the guarantor(s), and also check any guarantee provisions to confirm who the guarantors are and the scope of their liability.
  5. Any qualifications. Be sure to pay attention to any qualifying language that either introduces interpretive leeway (e.g., the use of “reasonable reliance” in example 4 below) or that limits the application of other provisions in the agreement. In the latter case, the limitation of liability clause may, for example, clarify that it represents the “sole remedy” or “exclusive remedy” for the parties with respect to particular claims under the contract (see examples 3 and 7 below) and/or that it overrides any other provision in the agreement addressing liability. The opening phrase of 10.1 in example 2 below illustrates this by stating: “This Clause 10 prevails over the other Clauses and sets out the parties’ entire liability…to each other in respect of…” In other words, for breaches, misrepresentations, etc. that Clause 10 is meant to be a complete code for addressing the parties’ liability to one another and takes precedence over any other clause in the agreement that may conflict with its terms.

As with the review of any contractual provision, it’s also important to be aware of other provisions that may affect the interpretation of limitation of liability clauses. Pricing terms, for example, were mentioned in point 2 above and guarantee provisions were mentioned in point 4. The indemnification clause is another key risk-management provision that may interact or overlap with the limitation of liability clause - for instance, example 1 below provides a specific carve out for indemnification obligations, meaning that losses a party agrees to indemnify under that agreement are excluded from any protection otherwise available under the limitation of liability clause. Similarly, an insurance clause in a contract will set out the parties’ obligations to maintain certain specified insurance coverage, which may provide additional financial safeguards. Finally, as mentioned above, enforceability is an issue that regularly affects limitation of liability clauses. The enforceability of these clauses typically turns on both the facts and circumstances of each case and applicable law. The governing law section states which jurisdiction’s laws apply to the agreement, which can help parties anticipate potential issues with the enforceability of a particular limitation of liability clause.

Software that uses AI to identify and extract limitation of liability clauses (as well as other terms that may affect their interpretation) can accelerate the work of finding these provisions and enable a more comprehensive review than can otherwise be done manually.

Examples of the Limitation of Liability Clause

Below are some examples of limitation of liability clauses from different kinds of agreements. While these examples do not necessarily cover the full range of limitation of liability clauses one may encounter, they are meant to illustrate the degree to which these provisions can vary from contract to contract. Where an example includes broader contextual language, the limitation of liability clause is highlighted in bold.

Example 1: From a Supply Agreement

  1. LIMITATIONS ON LIABILITY. In no event shall either Party be liable to the other Party for any indirect, incidental, special, consequential, punitive or exemplary damages (including, but not limited to, damages based upon lost profits, business interruption, lost business, or lost savings) for any acts or failure to act under this Agreement, even if it has been advised of their possible existence. Notwithstanding the foregoing, there shall be no limitation on a Party’s liability for claims: a) arising out of a breach of its confidentiality obligations under this Agreement; or b) arising out of its indemnification obligations under this Agreement.

Example 2: From a Service Agreement

  1. LIMITATION OF LIABILITY

10.1 This Clause 10 prevails over the other Clauses and sets out the parties’ entire liability (including any liability for the acts and omissions of its employees, agents and subcontractors) to each other in respect of:

10.1.1 any breach of its contractual obligations or conditions under this Agreement; and

10.1.2 any representation, warranty, statement or tortious act or omission (including negligence) arising under or in connection with this Agreement.

10.2 Neither party excludes liability to the other for:

10.2.1 personal injury (including sickness and death) to the extent that such injury results from the negligence or wilful default of itself, its servants, agents or subcontractors;

10.2.2 any breach of any obligations implied by Section 12 of the Sale of Goods Act 1979 or Section 13 of the Supply of Goods and Services Act 1982; and

10.2.3 fraud or fraudulent misrepresentation.

10.3 Except as provided in Clauses 10.2 and 10.4, in no event shall either party’s liability under this Agreement for any breach of its contractual obligations or conditions or for any representation, warranty, statement or tortious act or omission (including negligence) arising under or in connection with this Agreement exceed one hundred and twenty five percent (125%) of the Charges paid and payable for the Services in the then current Year of the Agreement.

10.4 In no event shall either party’s liability in respect of loss or damage to the tangible property of the other under this Agreement exceed one million pounds (£1,000,000) per event or series of connected events.

10.5 Except as provided in Clause 10.2, neither party shall be liable to the other under or in connection with this Agreement, whether in contract, tort (including negligence), misrepresentation (other than where made fraudulently), breach of warranty or statutory duty or otherwise for:

10.5.1 any loss of business, contracts, profits, anticipated savings, goodwill, or revenue; or

10.5.2 any indirect or consequential loss whatsoever incurred by the other, whether or not the possibility of such loss has been advised in advance.

Example 3: From a Reseller Agreement

  1. LIMITATIONS ON LIABILITY

15.1 Limitations on Loss or Damage. Reseller’s sole remedies for loss or damage caused by partial or total failure of the Company Facilities or for delay or nonperformance of any of the Company Services or any other obligation arising from or related to this Agreement, regardless of the form of action, whether in contract, tort (including negligence), strict liability or otherwise, shall be Reseller’s actual proven damages, if any, resulting solely from such failure, delay, or nonperformance and limited solely to the amount paid by Reseller to Company under this Agreement during such period of failure, delay, or nonperformance. RESELLER RECOGNIZES THAT COMPANY DOES NOT CONTROL THE INTERNET AND THAT COMPANY SHALL HAVE NO LIABILITY WHATSOEVER TO RESELLER OR ANY THIRD PARTY CLAIMING BY OR THROUGH RESELLER FOR THE ACCURACY, TIMELINESS OR CONTINUED AVAILABILITY OF THE INTERNET.

15.2 Disclaimer. AS A MATERIAL PART OF THE CONSIDERATION PAID BY RESELLER FOR THE COMPANY SERVICES, PROVIDED BY COMPANY, RESELLER ON ITS OWN BEHALF AND ON BEHALF OF THE SUBSCRIBERS, AGREES THAT COMPANY SHALL IN NO EVENT BE LIABLE FOR AND RESELLER HEREBY WAIVES ITS RIGHT AND THE RIGHT OF THE SUBSCRIBERS TO CLAIM ANY INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING LOST PROFITS), DIRECTLY OR INDIRECTLY RELATING TO OR ARISING OUT OF THIS AGREEMENT REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, AND WHETHER OR NOT SUCH DAMAGES WERE FORESEEN OR UNFORESEEN. THE FOREGOING DISCLAIMER SHALL APPLY IN CIRCUMSTANCES INCLUDING, BUT NOT LIMITED TO, RESELLER’S AND SUBSCRIBERS INABILITY TO USE THE COMPANY FACILITIES, THE COMPANY SERVICES, THE SOFTWARE OR THE PRODUCTS, OR ANY PART THEREOF, EITHER SEPARATELY OR IN COMBINATION WITH ANY OTHER COMMUNICATIONS FACILITIES OR IN CONNECTION WITH ANY COMPANY SERVICES, PERFORMED OR NOT PERFORMED BY COMPANY UNDER THIS AGREEMENT, OR A THIRD PARTY’S UNAUTHORIZED ACCESS TO RESELLER’S OR A SUBSCRIBERS DATA TRANSMITTED OVER THE COMPANY FACILITIES OR THE COMPANY SERVICES.

15.3 Company is not liable for damages for any accident or injury occasioned by the use of the Services or the presence of the Handheld.

Example 4: From a Professional Services Agreement

Consultant Liability. Consultant shall have no liability for defects in Consultant’s Services attributable to Consultant’s reasonable reliance upon or use of data, design criteria, drawings, or other information furnished by Client; provided, however, that Consultant shall in all events remain liable for defects arising from or relating to negligence or willful misconduct of Consultant or its subcontractors, agents, employees, or personnel.

Example 5: From a Distribution Agreement

6.2 Consequential Damages Waiver. IN NO EVENT WILL COMPANY BE LIABLE TO DISTRIBUTOR OR ITS CUSTOMERS FOR ANY INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE OR INDIRECT DAMAGES, INCLUDING BUT NOT LIMITED TO ANY LOST PROFITS OR LOST SAVINGS ARISING OUT OF THE USE OR INABILITY TO USE THE PRODUCTS OR OTHERWISE ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF COMPANY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

6.3 Limitation of Liability. COMPANY’S AGGREGATE LIABILITY UNDER OR ARISING OUT OF THIS AGREEMENT FOR ANY CLAIM, WHETHER BASED ON CONTRACT, TORT OR OTHERWISE, SHALL BE LIMITED TO AN AMOUNT EQUAL TO THE AMOUNT PAID BY DISTRIBUTOR TO COMPANY UNDER THIS AGREEMENT FOR THE PRODUCTS THAT ARE THE SUBJECT OF THE LIABILITY IN THE SIX-MONTH PERIOD IMMEDIATELY PRECEDING THE DATE ON WHICH THE CLAIM AROSE.

Example 6: From a License and Services Agreement

M. Limitation of Liability

NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OF PROFITS, REVENUE, DATA, OR DATA USE. PROVIDER’S MAXIMUM LIABILITY FOR ANY DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT OR YOUR ORDER, WHETHER IN CONTRACT OR TORT, OR OTHERWISE, SHALL BE LIMITED TO THE AMOUNT OF THE FEES YOU PAID PROVIDER UNDER THIS AGREEMENT, AND IF SUCH DAMAGES RESULT FROM YOUR USE OF PROGRAMS OR SERVICES, SUCH LIABILITY SHALL BE LIMITED TO THE FEES YOU PAID PROVIDER FOR THE DEFICIENT PROGRAM OR SERVICES GIVING RISE TO THE LIABILITY.

Example 7: From a License and Services Agreement

E. Warranties, Disclaimers, and Exclusive Remedies

Provider warrants that a program licensed to you will operate in all material respects as described in the applicable program documentation for one year after delivery (i.e. via physical shipment or electronic download). You must notify Provider of any program warranty deficiency within one year after delivery. Provider also warrants that services ordered will be provided in a professional manner consistent with industry standards. You must notify Provider of any services warranty deficiencies within 90 days from performance of the defective services.

PROVIDER DOES NOT GUARANTEE THAT THE PROGRAMS WILL PERFORM ERROR-FREE OR UNINTERRUPTED OR THAT PROVIDER WILL CORRECT ALL PROGRAM ERRORS.

FOR ANY BREACH OF THE ABOVE WARRANTIES, YOUR EXCLUSIVE REMEDY, AND PROVIDER’S ENTIRE LIABILITY, SHALL BE: (A) THE CORRECTION OF PROGRAM ERRORS THAT CAUSE BREACH OF THE WARRANTY, OR IF PROVIDER CANNOT SUBSTANTIALLY CORRECT SUCH BREACH IN A COMMERCIALLY REASONABLE MANNER, YOU MAY END YOUR PROGRAM LICENSE AND RECOVER THE FEES PAID TO PROVIDER FOR THE PROGRAM LICENSE AND ANY UNUSED, PREPAID TECHNICAL SUPPORT FEES YOU HAVE PAID FOR THE PROGRAM LICENSE; OR (B) THE REPERFORMANCE OF THE DEFICIENT SERVICES, OR IF PROVIDER CANNOT SUBSTANTIALLY CORRECT A BREACH IN A COMMERCIALLY REASONABLE MANNER, YOU MAY END THE RELEVANT SERVICES AND RECOVER THE FEES PAID TO PROVIDER FOR THE DEFICIENT SERVICES.

With respect to third party programs and ancillary programs (as defined in section A above), Provider will pass through to you, to the fullest extent possible, the warranties from Provider’s licensors as they relate to third party programs.

TO THE EXTENT PERMITTED BY LAW, THESE WARRANTIES ARE EXCLUSIVE AND THERE ARE NO OTHER EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS, INCLUDING WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

Example 8: From a Master Services Agreement

9.0 LIMITATIONS OF LIABILITY

9.1 For purposes of all exclusive remedies and limitations of liability set forth in this Agreement or any Attachment, “Company” shall be defined as Company, its Affiliates, and its and their employees, directors, officers, agents, representatives, subcontractors, interconnection service providers and suppliers; and “You” shall be defined as You, Your Affiliates, and Your and their employees, directors, officers, agents, and representatives; and “Damages” will refer collectively to all injury, damage, liability, loss, penalty, interest and expense incurred.

9.2 EITHER PARTY’S ENTIRE LIABILITY AND THE OTHER PARTY’S EXCLUSIVE REMEDIES, FOR ANY DAMAGES CAUSED BY ANY SERVICE DEFECT OR FAILURE, OR FOR OTHER CLAIMS ARISING IN CONNECTION WITH ANY SERVICE OR OBLIGATIONS UNDER THIS AGREEMENT SHALL BE:

(i) FOR BODILY INJURY OR DEATH TO ANY PERSON, OR REAL OR TANGIBLE PROPERTY DAMAGE, NEGLIGENTLY CAUSED BY A PARTY, OR DAMAGES ARISING FROM THE WILLFUL MISCONDUCT OF A PARTY OR ANY BREACH OF ARTICLES 4 OR 5, THE OTHER PARTY’S RIGHT TO PROVEN DIRECT DAMAGES;

(ii) FOR DEFECTS OR FAILURES OF SOFTWARE, THE REMEDIES SET FORTH IN SECTION 6.6;

(iii) FOR INTELLECTUAL PROPERTY INFRINGEMENT, THE REMEDIES SET FORTH IN ARTICLE 11;

(iv) FOR DAMAGES OTHER THAN THOSE SET FORTH ABOVE AND NOT EXCLUDED UNDER THIS AGREEMENT, EACH PARTY’S LIABILITY SHALL BE LIMITED TO PROVEN DIRECT DAMAGES NOT TO EXCEED PER CLAIM (OR IN THE AGGREGATE DURING ANY TWELVE (12) MONTH PERIOD) AN AMOUNT EQUAL TO THE TOTAL NET PAYMENTS MADE BY YOU FOR THE AFFECTED SERVICE DURING THE THREE (3) MONTHS PRECEDING THE MONTH IN WHICH THE DAMAGE OCCURRED. THIS SHALL NOT LIMIT YOUR RESPONSIBILITY FOR THE PAYMENT OF ALL PROPERLY DUE CHARGES UNDER THIS AGREEMENT.

9.3 EXCEPT FOR THE PARTIES’ ARTICLE 11 OBLIGATIONS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS, ADVANTAGE, SAVINGS OR REVENUES OF ANY KIND OR INCREASED COST OF OPERATIONS.

9.4 COMPANY ALSO SHALL NOT BE LIABLE FOR ANY DAMAGES ARISING OUT OF OR RELATING TO: INTEROPERABILITY, ACCESS OR INTERCONNECTION OF THE SERVICES WITH APPLICATIONS, EQUIPMENT, SERVICES, CONTENT OR NETWORKS PROVIDED BY YOU OR THIRD PARTIES; SERVICE INTERRUPTIONS (EXCEPT WHERE A CREDIT IS EXPLICITLY SET FORTH IN AN ATTACHMENT OR SERVICE GUIDE) OR LOST OR ALTERED MESSAGES OR TRANSMISSIONS; OR, UNAUTHORIZED ACCESS TO OR THEFT, ALTERATION, LOSS OR DESTRUCTION OF YOUR, USERS' OR THIRD PARTIES’ APPLICATIONS, CONTENT, DATA, PROGRAMS, INFORMATION, NETWORK OR SYSTEMS.

9.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, COMPANY MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OR ANY WARRANTY ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE.

9.6 THE LIMITATIONS OF LIABILITY SET FORTH IN THIS AGREEMENT SHALL APPLY: (i) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE; AND (ii) WHETHER OR NOT DAMAGES WERE FORESEEABLE. THESE LIMITATIONS OF LIABILITY SHALL SURVIVE FAILURE OF ANY EXCLUSIVE REMEDIES PROVIDED IN THIS AGREEMENT.

Example 9: From a Supply and Distribution Agreement

14.2. Limited Warranty and Limitation of Liability. THE WARRANTIES SET FORTH IN SECTION 14.1 ARE INTENDED SOLELY FOR THE BENEFIT OF SUPPLIER. ALL CLAIMS HEREUNDER SHALL BE MADE BY SUPPLIER AND MAY NOT BE MADE BY SUPPLIER' CUSTOMERS. THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY MANUFACTURER, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE. THE SOLE AND EXCLUSIVE REMEDIES OF SUPPLIER FOR BREACH OF PRODUCT WARRANTY SHALL BE LIMITED TO THE REMEDIES PROVIDED IN THIS AGREEMENT. IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR ANY LOST PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES OF ANY KIND, FOR ANY REASON WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, CHARGES BASED ON NEGLIGENCE, BREACH OF WARRANTY, STRICT LIABILITY, OR ANY OTHER THEORY, EVEN IF MANUFACTURER SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.

Example 10: From a Supply Agreement

10.5 LIMITATION AND DISCLAIMER OF LIABILITY.

(a) EXCEPT WITH RESPECT TO: (1) EITHER PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS, (2) DAMAGES ARISING FROM EITHER PARTY’S VIOLATION OF THE INTELLECTUAL PROPERTY RIGHTS OF THE OTHER PARTY OR (3) INDEMNIFICATION OBLIGATIONS UNDER SECTION 5.3.1 (EXCEPT FOR SECTION 5.3.1(ii)(II)) AND SECTION 5.3.2(A)HEREUNDER WITH RESPECT TO DAMAGES OR LOSSES, NEITHER PARTY SHALL BE LIABLE TO THE OTHER UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER THEORY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION LOST PROFITS IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT OR ANY PURCHASE ORDER, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

(b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, IN NO EVENT WILL EITHER PARTY OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, CUSTOMERS AND AGENTS, INCUR ANY LIABILITY RELATED TO OR ARISING OUT OF THIS AGREEMENT OR THE PRODUCTS, REGARDLESS OF THE FORM OF THE ACTION, WHETHER IN CONTRACT, WARRANTY, RELIANCE, TORT (INCLUDING NEGLIGENCE) OR OTHER LEGAL THEORY, EXCEEDING IN THE AGGREGATE UNDER THIS AGREEMENT (I) $5,000,000 PER CLAIM NOR (II) $10,000,000 IN THE AGGREGATE IN ANY CALENDAR YEAR. HOWEVER, FOR INDEMNIFICATION OBLIGATIONS UNDER SECTION 5.3.1 (EXCEPT FOR SECTION 5.3.1(ii)(II)) AND SECTION 5.3.2(A) AND FOR CORPORATE WILLFUL MISCONDUCT OF A PARTY, THERE IS NO LIMITATION ON THE AMOUNT OF SUCH PARTY’S LIABILITY.

Example 11: From an Equipment Manufacturer Agreement

  1. LIMITATION OF LIABILITY

EXCEPT FOR LIABILITY ARISING FROM SECTION 8 (“INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY”), SECTION 10 (“INTELLECTUAL PROPERTY RIGHTS INDEMNITY”), OR DEATH, REGARDLESS OF THE FORM OF ANY CLAIM OR ACTION, IN NO EVENT SHALL EITHER PARTY’S TOTAL LIABILITY TO THE

OTHER PARTY EXCEED THE GREATER AMOUNT OF FOUR MILLION DOLLARS ($4,000,000) OR THE TOTAL AMOUNT RECEIVED BY NETRONOME HEREUNDER WITH RESPECT TO THE NETRONOME PRODUCT THAT IS THE SUBJECT OF A CLAIM HEREUNDER.

WHETHER BASED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE), IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS (EXCEPT, FOR LIABILITY ARISING FROM SECTION 10 (“INTELLECTUAL PROPERTY RIGHTS INDEMNITY”), TO THE EXTENT LOST PROFITS CONSTITUTE THE MEASURE OF DAMAGES UNDER FEDERAL PATENT OR COPYRIGHT LAWS OR APPLICABLE TRADE SECRET STATUTES, OR LOSS OF USE OF THE PRODUCTS OR DOCUMENTATION OR ANY EQUIPMENT, OR FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE, MULTIPLE OR OTHER DAMAGES, ARISING FROM OR IN CONNECTION WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN MADE AWARE OF THE POSSIBILITY OF SUCH DAMAGES. THIS DISCLAIMER OF LIABILITY FOR DAMAGES WILL NOT BE AFFECTED IF ANY REMEDY PROVIDED HEREUNDER SHALL FAIL OF ITS ESSENTIAL PURPOSE.

Example 12: From a Distribution Agreement

17.1 Exclusion of Consequential Loss

Without limiting the generality of the foregoing, neither party will have liability to the other, however arising and under any cause of action or theory of liability, in respect of incidental, special, indirect or consequential damages, loss of profit or loss of business opportunity, unless this agreement expressly provides otherwise…

17.6 Cap on Liability

(a) Subject to clause 17.6(b), the aggregate liability of Supplier to Distributor under or in relation to this agreement (including indemnities given in clause 17:

(i) arising out of any one act, omission or event and any one series of related acts, omissions or events are not to exceed the amounts paid to Supplier in the 18 month period prior to the act, omission or event or the first in the series of acts, omissions or events; and

(ii) arising out of all acts, omissions and events whenever occurring is not to exceed the total amount paid to Supplier under this agreement.

(b) The limitation of liability in clause 17.6(a) will not apply to any liability of Supplier under clauses 17.4(a)(iii) or (iv).

Example 13: From a Feasibility Testing Agreement

  1. Limitation of Liability.

EXCEPT FOR BREACHES OF SECTIONS 4, 5, 6, 7 AND 9 ABOVE AND TO THE EXTENT OF EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER SECTION 10 ABOVE, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR: (A) THE PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, OR SERVICES; OR (B) INDIRECT, SPECIAL, INCIDENTAL, RELIANCE OR CONSEQUENTIAL DAMAGES OF ANY KIND, REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

Example 14: From an Equipment Lease

  1. WARRANTIES. Lessor passes through to Lessee, to the extent permitted, all applicable warranties made available by Lessee’s Supplier and/or by the Equipment manufacturer in the Purchase agreement. Lessor represents and warrants that neither Lessor, nor anyone acting or claiming through Lessor, by assignment or otherwise, will interfere with Lessee’s quiet enjoyment of the Equipment so long as no event of default by Lessee or anyone acting or claiming through Lessee, shall have occurred and be continuing. During the Term of the Lease, Lessor assigns to Lessee all the rights that Lessor may have to be defended by Lessee’s Supplier and/or by the Equipment manufacturer under any patent and copyright provisions in the Purchase Agreement. EXCEPT AS EXPRESSLY PROVIDED ABOVE, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT AND TAKES ANY FINANCED ITEM “AS IS.” IN NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY AGAINST LESSOR FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF PROFITS OR SAVINGS, LOSS OF USE, OR ANY OTHER COMMERCIAL LOSS. This shall in no way affect Lessee’s rights and remedies against Lessee’s Supplier and/or the Equipment manufacturer.

Example 15: From a Commercial Lease Agreement

8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee. Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom except for Lessor’s gross negligence or willful misconduct.