A limitation of liability provision is a contractual mechanism that limits exposure to liability relating to the performance of a contract.  Typical limitation of liability provisions limit a seller’s damages for breach of the agreement to: (i) the value of the contract, (ii) a sum agreed upon by the parties to the contract, (iii) the seller’s available insurance coverage or (iv) a combination of the aforementioned.  Depending on its structure, a limitation of liability provision may apply to all claims arising during the course of the performance of the contract, or to claims relating to the breach of certain covenants, representations or warranties in the contract.  The importance of the limitation of liability provision is its ability not only to limit potential damages in a claim, but to also forecast the possible damage award in the event such a claim is initiated.  As the purchasing party, if the seller manages to convince you to include such a provision in your agreement, consider excluding breaches of confidentiality, indemnification, liquidated damages and any other special provisions (i.e., trademark or logo) from the limitation.  These exclusions will ultimately allow the purchaser to seek relief for the most important provisions of the contract without limitation.

This entry was posted on Thursday, December 4th, 2008 at 4:45 pm and is filed under Agreements, Contracts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.