A limitation of liability is a contract provision that caps or restricts a party’s exposure to specified claims or damages.
Definition
A limitation of liability clause sets a boundary on financial responsibility for certain claims, losses, or types of damages. It may use a fixed dollar amount, a multiple of fees, an insurance limit, or another measure stated in the agreement. The covered claims and any exceptions depend on the actual wording, governing law, and circumstances. Engineering firms may compare the proposed cap with the project fee, services, insurance structure, and related indemnity or damages provisions. There is no single calculation used by every firm, and a stated cap may not apply to every claim. The provision is not insurance, does not itself determine whether a claim is valid, and does not guarantee that a court will enforce it as written. Owners treat it as one part of the contract’s risk allocation and review how it fits with defense obligations, consequential damages, and policy terms. The ACEC offers resources for engineering business owners, while contract effect depends on the specific agreement and applicable law.
How owners use it
- Owners identify the cap amount, the claims it covers, and any exceptions before comparing it with other risk terms.
- If a proposed cap is two times a $50,000 fee, the stated cap is $50,000 × 2 = $100,000, subject to the clause’s scope and enforceability.
- Contract review compares the liability cap with indemnity, defense obligations, consequential-damage wording, and insurance terms.
- A firm records which project agreements contain caps and the measure each agreement uses.
