Liability clauses should reflect what can go wrong, how losses may arise, and which party is best placed to manage each risk.
Start with the business exposure
A low contract value does not always mean low exposure. Consider data, operations, third-party claims, business interruption, confidentiality and regulatory consequences when designing an allocation of risk.
Read the clause as a complete system
Caps, exclusions, indemnities, insurance, warranties and termination rights must operate consistently. Broad exclusions can inadvertently undermine an intended indemnity or service commitment.
- Check whether a cap is per claim or aggregate.
- Define which losses are excluded and which remain recoverable.
- Consider whether carve-outs are proportionate and insurable.
- Check applicable law and enforceability for the transaction.
Draft for predictability
Clear definitions and carefully negotiated exceptions reduce future disputes. Neither party benefits from a clause that is so broad or contradictory that its practical meaning remains uncertain.
This article provides general information and is not legal advice. Applicable law and the right approach depend on the circumstances; please obtain professional advice before acting.