Glossary

A limitation of liability clause caps the amount of liability one party to the contract may have to the other party. Frequently used to equalize the imbalance between the potentially enormous risks assumed in performing a contract, as related to the relatively small profit or fee received for that performance. Design contracts, for example, commonly include a limitation of liability clause that limits the architect's or engineer's liability for design flaws to the amount of its fee for work performed under the contract. Note that these provisions only apply to the liability of one contracting party to the other. They do not limit liability with respect to others who are not subject to the contract. When drafted appropriately, these clauses are largely enforceable.

A limitation of risk concerns the maximum amount an insurer or reinsurer can be obligated to pay in any one loss event.

A limited damage waiver (LDW) is a contractual provision under which the rental company waives or limits the renter's financial responsibility for physical damage to or loss of the rented property up to a stated amount. It is typically found in a vehicle or equipment rental agreement. Unlike traditional insurance, the waiver modifies the rental contract and applies only if the renter complies with the agreement's terms. Examples would include authorized use, reporting requirements, and restrictions on prohibited conduct. The renter may remain responsible for amounts above the waiver limit, excluded losses, liability to third parties, personal injuries, and damage caused by misuse or other violations.

A limited health benefit plan is one that restricts covered services to a medical specialization or a group of related specializations, such as psychology and family counseling.

A limited liability company (LLC) is a legal entity seeking to realize the benefits of both a corporate and a partnership legal structure. More than 40 states have enacted statutes authorizing this form of legal entity. LLCs provide the liability protection afforded by corporations (i.e., unlike a partnership, principals are not personally liable for the debts and obligations of the organization) and offer the tax benefits afforded to partnerships (i.e., they avoid double taxation and permit allocation of taxable income and deductions). There are two key limitations associated with LLCs: they are available only for privately held companies, and the equity interest in an LLC is not freely transferable.

A limited life and health insurance company is one that issues nonassessable policies with limited benefits.

A limited life insurance policy is a life insurance policy that pays benefits only if the insured dies from a specified cause (e.g., cancer or auto accident).

Limited losses are amounts of losses whereby the size of individual claims is limited to a particular value, for example, $500,000. Losses are sometimes limited in this manner when analyzing loss experience or forecasting future losses to minimize the effect of low-frequency catastrophe events on the analysis.

Limited Mexico Coverage (CA 01 21) endorsement is a standard endorsement used with the business auto policy (BAP) to provide limited excess coverage for autos taken across the Mexico border. Significant limitations apply. For example, the accident must occur within 25 miles of the US border, and the duration of the trip must be 10 days or less. This coverage may not meet Mexican insurance requirements. (Failure to procure Mexican insurance may result in criminal charges.) Additional restrictions also apply.

Limited payment life insurance refers to a life insurance policy that covers the insured's entire life with premium payments required only for a specified period of years.