How to Negotiate A Limitation of Liability Clause
Negotiate a limitation of liability clause by checking the cap amount, what it excludes (consequential/indirect losses), and which carve-outs sit outside the cap entirely (IP infringement, confidentiality breach, gross negligence). An uncapped clause exposes the paying party to unlimited risk; an overly aggressive cap leaves the other side under-protected if things go badly wrong.
This guide describes general, widely-used commercial negotiation practice — it is informational, not legal advice on any specific contract. The right position for your deal depends on your actual leverage, relationship, and governing law. Have your actual clause reviewed by a lawyer before relying on any of this.
What each side typically wants
Wants the lowest possible cap, broad exclusion of consequential/indirect damages, and as few carve-outs from the cap as possible.
Wants the cap set high enough to actually cover realistic worst-case loss, and key risks (IP infringement, data breach, confidentiality, gross negligence) carved out entirely.
Red flags worth pushing back on
- Cap set as a flat, low figure unrelated to contract value or realistic exposure (e.g. capped at one month's fees on a multi-year deal)
- No carve-outs at all — even IP infringement, confidentiality breach, and gross negligence sit inside the cap
- Broad exclusion of "any and all" indirect or consequential losses with no defined examples, which can unpredictably sweep in real, direct losses
- Cap applies per claim with no aggregate cap, or aggregate cap with no per-claim cap — check which structure actually protects you
- Mutual cap in name only — asymmetric in practice because one party's realistic exposure is far higher than the other's
How to negotiate it
- Set the cap as a multiple of fees paid (e.g. 12 months' fees, or total contract value) rather than a flat figure
- Carve out IP infringement, confidentiality/data breaches, and gross negligence or willful misconduct from the cap entirely
- Define "consequential loss" with examples rather than leaving it to later dispute
- Confirm whether the cap is per-claim, aggregate, or both — and make sure that structure matches your actual risk
- Push for genuine mutuality if the clause claims to be reciprocal but the underlying risk isn't symmetric
Sample fallback language
"...total aggregate liability... shall not exceed [12 months' fees paid], except in respect of claims arising from breach of confidentiality, infringement of intellectual property rights, or gross negligence or willful misconduct, which shall not be subject to this limitation."
Illustrative starting language only — have it reviewed and adapted to your actual deal and governing law before using it.
Frequently asked questions
What is a reasonable liability cap?
There is no universal figure — it depends on deal size and risk. A common commercial starting point is 12 months' fees or total contract value, with key risks like IP infringement and confidentiality breaches carved out entirely.
Should gross negligence always be carved out of the cap?
Most negotiators treat this as close to non-negotiable — leaving gross negligence or willful misconduct inside a liability cap effectively lets a party cap its own deliberate or reckless failures, which most counterparties will refuse to accept.
Don't negotiate this alone.
A lawyer reviewing your actual contract flags exactly which clauses need to change, and gives you the specific language to propose — from ₹3,499 one-off.