Damage Limitation Clause
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A Damage Limitation Clause is a contractual clause that caps the amount of compensatory damages an aggrieved party can claim in the event of a breach or other specified circumstances.
- Context:
- It can (typically) contain Limitation of Damages Provisions, such as:
- Excluded Types of Damages Provision, excluding liability for certain types of damages such as indirect, incidental, consequential, punitive, special or exemplary damages.
- Example: "In no event shall DARPA be liable for claims for consequential, punitive, special and incidental damages, claims for lost profits, or other indirect damages."
- Compensatory Damages Cap Provision, limiting losses or costs incurred that one party can recover from another.
- Example: "Claims for damages of any nature whatsoever pursued under this Agreement shall be limited to direct damages only up to the aggregate amount of DARPA funding disbursed as of the time the dispute arises."
- Aggregate Damages Cap Provision, capping the total amount of damages that can be recovered, often to a fixed amount or a measure such as the total amount paid under the contract.
- Example: "Subject to the provisions hereof, the aggregate liability of either party for any and all claims or actions arising from or related to this Agreement will be limited to the total amount paid by Licensee to Alliance under this Agreement, except for Licensee's indemnification obligations set forth in Section 9.2 of this Agreement, which shall be limited to USD 500,000."
- Liability Carve-out Provision, stating that the exclusions and caps do not apply to certain liabilities like indemnification obligations, gross negligence, or willful misconduct.
- Example: "The limitations set forth in this section shall not apply in the case of gross negligence or wilful misconduct on the part of the defaulting party or anyone for whom it is responsible."
- Liability Basis Provision, stating that the limitations apply regardless of the cause of action or theory of liability, whether based on contract, tort, or any other legal or equitable principle.
- Example: "The foregoing notwithstanding, none of the parties shall be liable to any other party for any incidental, consequential, indirect, punitive or exemplary damages. All claims and damages asserted against the City or RDA shall be subject to statutory protections of municipalities and their officials and employees, including the immunity and limitations set forth in §893.80 Wis. Stats."
- Available Remedies Restriction Provision, limiting the remedies available, such as limiting to direct damages only and prohibiting recovery of punitive damages.
- Example: "Except as otherwise provided in this Agreement there is no warranty of merchantability or fitness for a particular purpose, and any and all implied warranties are disclaimed. Liability shall be limited to direct actual damages only, such direct actual damages shall be the sole and exclusive remedy and all other remedies or damages at law or in equity are waived unless expressly herein provided."
- Scope of Claims Provision, defining the scope of claims covered by the clause, often including claims arising out of or relating to the agreement between the parties, with some carve-outs for third-party claims.
- Example: "Neither party shall be liable to the other party under any cause of action, whether in contract, tort, or otherwise, for any indirect, special, incidental, consequential, punitive, exemplary or enhanced damages..."
- Damage Limitation Clause Warranty Disclaimer Provision, such as:
- "Except as expressly set forth herein, there is no warranty of merchantability or fitness for a particular purpose, and any and all implied warranties are disclaimed."
- Risk Allocation Acknowledgment Provision, where the parties acknowledge that the limitations reflect the agreed allocation of risk and are essential parts of the bargain between them.
- Example: "The parties acknowledge that the limitations set forth in this section reflect the allocation of risk set forth in this Agreement and that the parties would not enter into this Agreement without these limitations on their liability."
- Severability of Limitations Provision, stating that if any part of the Damage Limitation Clause is found to be unenforceable, the remainder still applies to the maximum extent permitted by law.
- Example: "If any provision of this Section is held to be unenforceable, this Section shall be construed without such provision."
- Damages Formula Provision, setting forth specific formulas or calculations based on amounts paid under the contract to limit financial exposure.
- Example: "In no event shall Company A's liability for damages under this Agreement exceed the total amount paid by Company B to Company A in the 12 months immediately preceding the event giving rise to the claim."
- Damage Limitation Exceptions Provision, setting forth any exceptions to the limitations and exclusions, such as for a party's breach of confidentiality, infringement of intellectual property rights, or payment obligations.
- Example: "The limitations set forth in this Section 8.2 (Limitation of Damages) shall not apply with respect to (a) any breach of Article 9 ([*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.) (Confidentiality) or (b) the intentional misconduct of a Party."
- ...
- Excluded Types of Damages Provision, excluding liability for certain types of damages such as indirect, incidental, consequential, punitive, special or exemplary damages.
- It can (often) be found in:
- ...
- It can (typically) contain Limitation of Damages Provisions, such as:
- Example(s):
- One stating: "In no event shall Company A's liability for damages under this Agreement exceed the total amount paid by Company B to Company A in the 12 months immediately preceding the event giving rise to the claim. This limitation applies to all causes of action in the aggregate, including without limitation breach of contract, breach of warranty, negligence, strict liability, and other torts."
- ...
- Counter-Example(s):
- Unlimited Liability Clauses allow for unlimited recovery of damages, contrasting with Damage Limitation Clauses.
- Exclusion Clauses specifically exclude compensatory damages from limitations, serving as agreements not utilizing a Damage Limitation Clause.
- See: Limitation of Liability Clause, Contractual Provision, Breach of Contract.
References
2024
- https://www.upcounsel.com/limitation-of-damages-clause
- NOTES: Here is a summary of key points about Limitation of Damages Clauses:
- A Limitation of Damages Clause is a contractual provision where parties agree to exclude or limit the types and amounts of damages they can recover from each other that would otherwise be available under law.
- These clauses are common in commercial contracts as a way for parties to assess and control their business risks. They relate specifically to damages, as opposed to broader liability limitation or exemption clauses.
- To be effective, the parties must agree to the Limitation of Damages Clause, often by including it in the contract terms. Implied limitations based just on party conduct or relationships are rare.
- Courts interpret limitations on damages clauses with the goal of determining the parties' intent, looking at factors like the wording used, clause organization, and the overall purpose of the agreement. Strict interpretation rules are often applied to exclusion clauses.
- When a contract contains both a warranty and a Limitation of Liability Clause, the court may have to determine which one prevails based on the organization and wording of the agreement. Understanding the full implications of such clauses before signing a contract is critical.
- NOTES: Here is a summary of key points about Limitation of Damages Clauses:
2024
- https://www.lawinsider.com/clause/limitation-of-damages
- NOTES: The main intention of a Damage Limitation Clause is to provide predictability, limit risk exposure, and restrict the types and amounts of damages that may be claimed between the contracting parties, with some exceptions for certain conduct or obligations. The language used is often very expansive to cover all potential theories and types of damages.
- Exclusion of Certain Types of Damages: Many clauses exclude liability for indirect, incidental, consequential, punitive, special or exemplary damages. Sample language: "In no event shall either party be liable to the other for any indirect, incidental, consequential, punitive, exemplary, or special damages."
- Limitation on Total Liability: Clauses often cap the total liability to a fixed amount or to some measure such as the total amount paid under the contract. Sample: "In no event shall either party's total liability to the other exceed the amount paid by Licensee to Alliance under this Agreement, except for Licensee's indemnification obligations."
- Carve-outs for Certain Liabilities: Exclusions and caps often do not apply to certain liabilities like indemnification obligations, gross negligence, or willful misconduct. Sample: "The limitations set forth in this section shall not apply in the case of gross negligence or willful misconduct."
- Application Regardless of Theory of Liability: Clauses often state that the limitations apply regardless of the cause of action or theory of liability. Sample: "...whether based on contract, tort (including negligence and strict liability), or any other legal or equitable principle..."
- Disclaimer of Warranties: Some clauses disclaim warranties like merchantability or fitness for a particular purpose. Sample: "Except as expressly set forth herein, there is no warranty of merchantability or fitness for a particular purpose, and any and all implied warranties are disclaimed."
- Restriction on Remedies: Some provisions limit remedies, like limiting to direct damages only. Sample: "The parties agree that neither party shall be liable to the other for any punitive damages whatsoever... provided, however, that such limitation shall not be applicable with respect to third party claims."
- Claims Covered: Clauses often cover claims "arising out of or relating to" the agreement and cover claims by the parties, with some carve out for third party claims. Sample: "Neither party shall be liable to the other party under any cause of action, whether in contract, tort, or otherwise, for any indirect, special, incidental, consequential, punitive, exemplary or enhanced damages..."
- NOTES: The main intention of a Damage Limitation Clause is to provide predictability, limit risk exposure, and restrict the types and amounts of damages that may be claimed between the contracting parties, with some exceptions for certain conduct or obligations. The language used is often very expansive to cover all potential theories and types of damages.