Skip to the page
Este sitio está disponible en español.Ver en español
All guides

The clause that limits how much you can recover

A limitation of liability clause can set the most you can recover, however large the loss. This guide reads one from a real agreement filed with the SEC.

What it costs

Under this cap, $380,000 of an assumed $500,000 loss could go unpaid.

Assumes a $500,000 loss of direct damages, $10,000 a month in fees (section 2), and a full year of fees already paid, so a $120,000 cap. An illustration, built on the assumptions stated here.

The clause, from a real filing

7. Limitation of Liability

To the fullest extent permitted by law, [the Firm]’s aggregate liability under this Agreement shall not exceed the total fees paid by the Company to [the Firm] during the twelve (12) months preceding the event giving rise to the claim. In no event shall either Party be liable to the other for any indirect, incidental, consequential, special, or punitive damages.
Master Services Agreement, Exhibit 10.1, CIK 1392694, Form 8-K, filed with the SEC on January 14, 2026. Names replaced. Read the original on SEC.gov
  • High risk

    A one-sided dollar cap

    Only the firm’s liability has a dollar cap. The same section waives indirect, incidental, consequential, special and punitive damages for both sides, so neither can claim them from the other.

The change to ask for

Before: [the Firm]’s aggregate liability under this Agreement shall not exceed the total fees paid by the Company to [the Firm] during the twelve (12) months preceding the event giving rise to the claim.

After: [the Firm]’s aggregate liability under this Agreement shall not exceed the greater of $500,000 or the total fees paid by the Company to [the Firm] during the twelve (12) months preceding the event giving rise to the claim, except for claims arising from gross negligence or willful misconduct.

Suggested language to discuss, not legal advice. The $500,000 floor is an example.

Before you sign: the liability cap

  1. Find the cap. It often sits under a heading like Limitation of Liability.
  2. Check who it covers. A cap that names only one side protects only that side.
  3. Check what it is measured by: fees paid, fees payable, or a fixed dollar figure.
  4. Check the look-back. A cap built from fees already paid is smallest early in the deal.
  5. Check what sits outside it, such as gross negligence, willful misconduct, confidentiality, and indemnity.
  6. Consider asking for a dollar floor, a cap that runs both ways, or carve-outs that fit the deal.
Open the one-page checklist to print
Transcript
  1. 0:00This clause limits what you can recover.
  2. 0:03It comes from a services agreement filed with the SEC.
  3. 0:07The firm owes, at most, the fees paid in the year before the problem.
  4. 0:11Only the firm gets that cap.
  5. 0:13At $10,000 a month, the cap reaches $120,000.
  6. 0:18If a mistake costs $500,000, this cap could leave $380,000 unpaid.
  7. 0:24Three things decide whether a cap is fair. Does it cover both sides? What does it leave out, such as gross negligence? And does an uncapped indemnity sit beside it?
  8. 0:35Ask for a higher cap, with gross negligence outside it.
  9. 0:39A BeforeJD read marks a clause like this, explains it in plain English, and writes the change to ask for.
  10. 0:46It also drafts the email that asks for it.
  11. 0:50Check your contract for this clause.
  12. 0:52Your first read is free.

Keep reading

Check your contract for this clause.

BeforeJD reads your contract and marks this clause, and every other one worth a second look.

Your first read is free.

Read a contract

BeforeJD is not a law firm. This is informational only, not legal advice.