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limitation of liability clause

A limitation of liability clause caps the amount of liability one party to the contract may have to the other party.

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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.