What it is
This clause caps how much one party can recover from the other if something goes wrong. It usually excludes 'consequential' damages (lost profits, business interruption) and sets a dollar cap, often tied to fees paid under the contract.
Why it matters
Without a cap, a small contract can produce a giant lawsuit. With a one-sided cap (limiting only their liability, not yours), you absorb all the risk.
Sample clause language
"In no event shall Provider's total liability exceed the fees paid in the prior twelve (12) months, and Provider shall not be liable for any indirect, incidental, or consequential damages."
What it really means: Reasonable cap (12 months of fees) and standard consequential damages exclusion. But check whether the cap is mutual — if only the provider is capped, you're carrying all the downside.
Red flags
- Cap applies to only one party
- Cap below total fees paid
- Excludes liability for the other party's gross negligence or willful misconduct
- Excludes liability for IP infringement / data breach
Fair / acceptable
- Mutual cap, both sides protected
- Cap = 12 months of fees (or higher)
- Carve-outs for IP infringement, data breach, gross negligence, indemnity
- Standard exclusion of indirect / consequential damages
How to negotiate
- Make the cap mutual
- Add carve-outs for IP, breach of confidentiality, gross negligence
- Raise cap for high-risk engagements
Frequently asked questions
Decode this clause in your contract
Upload your contract and we'll flag this and every other risky clause — in plain English, in seconds.
Related clauses
Not legal advice. For informational purposes only.