Clause of the week #1: Limitation of Liability — the liability cap in your MSA
A $12k project. Section 11 says: In no event shall either party's aggregate liability exceed the fees paid in the twelve months preceding the claim.
Section 9 says: Contractor shall indemnify Client without limitation. And: The limitations in Section 11 shall not apply to Contractor's indemnification obligations.
You thought you had a cap. You actually have a carve-out that bypasses it. One third-party claim (font, OSS license, GDPR) can blow past the cap entirely.
Below: how liability caps work, typical traps, and what to negotiate.
What limitation of liability does
It sets a ceiling on how much one party can recover from the other for breach (late delivery, defective work, etc.).
| Clause | Role |
|---|---|
| Limitation of liability | Cap on direct contract damages |
| Exclusion of consequential damages | No lost profits / indirect losses |
| Indemnification | You reimburse third-party claims — often uncapped |
| Warranty disclaimer | "As is" — limits quality guarantees |
Read all four together. A nice cap in §11 is useless if indemnity in §9 is unlimited.
Common cap formulas
Fees paid — cap = total contract value. Most common on freelancer MSAs.
Rolling 12 months — cap scales with retainer revenue.
Fixed amount — e.g. $50k; check it isn't below what you're paid (weaker protection for you).
Aggregate vs per claim — one pool for all claims vs limit per incident.
Consequential damages
Neither party liable for indirect, incidental, special, consequential or punitive damages, including lost profits.
Good for you: client can't claim $2M lost revenue from a bug.
Trap: carve-outs — except confidentiality breaches, indemnification, payment — pull key risks out of the exclusion.
Carve-outs — where unlimited liability hides
Section 11 shall not apply to:
| Carve-out | Contractor risk |
|---|---|
| Indemnification | Unlimited — see indemnification article |
| Confidentiality / breach | GDPR, leaks |
| IP infringement | Fonts, patents, stock |
| Gross negligence | Subjective |
| Payment | Fair — debts shouldn't be capped |
Ask for: symmetric carve-outs and indemnity subject to the same aggregate cap.
One-sided vs mutual
Bad: Contractor's liability capped. Client's liability unlimited.
Better: Each party's aggregate liability…
Indemnity + cap interaction
Classic trap:
- §9: unlimited indemnity
- §11: cap at fees paid
- §11: cap does not apply to §9
Negotiate: mutual indemnity + same cap + narrow carve-outs (fraud/willful misconduct only).
Suggested redline
Each party's aggregate liability shall not exceed fees paid in the twelve months preceding the claim. Neither party liable for consequential damages. Limitations apply to indemnification except fraud or willful misconduct.
Case
$15k backend gig. Cap = fees paid. Carve-outs: indemnity + IP. Client sued over OSS license in dependencies. Settlement $40k + legal $12k — LoL never applied because claim ran through indemnity, not breach.
Checklist
- Is there a limitation clause at all?
- Cap formula — what's the number?
- Mutual or contractor-only?
- Consequential damages excluded both ways?
- Carve-outs gut the cap (indemnity, IP, confidentiality)?
- Indemnity section read separately?
- Fits with governing law?
Search PDF: limitation, liability, consequential, aggregate, shall not apply.
When to call a lawyer
- No cap or carve-outs cover everything
- PII / health / finance data
- > $30–50k or multi-year deal
- Client won't cap indemnity at all
Next: Clause #2 — Force Majeure.
Informational only, not legal advice.