Exclusion and limitation of liability clauses

Authored by the LexisNexis Legal Writer team.

Commercial contracts often contain exclusion clauses or limitation of liability clauses to allocate risk and liability between the parties.

An exclusion clause is a provision in a contract that seeks to exclude a party’s liability for certain actions, events, matters or circumstances, such as liability:

• for the party’s breach of contract;
• for the party’s breach of specified obligations within the contract;
• for the party’s negligence; or
• arising under statute.

A limitation of liability clause (sometimes simply called a “limitation clause”) is a provision that seeks to limit a party’s liability within specified parameters, eg by limiting a party’s liability to a certain monetary amount, to claims made within certain timeframes, or to certain kinds of claims or heads of liability.

Exclusion and limitation of liability clauses can be mutual (excluding or limiting the liability of both or all contract parties) or one-way (excluding or limiting the liability of only one party or specified contract parties).

Nature and function of exclusion and limitation of liability clauses

Exclusion and limitation of liability clauses in commercial contracts allow a party to exclude or limit their liability in different ways, including by: