Contract Glossary

Liability

Definition

Liability is your legal responsibility when something goes wrong. In contracts, liability clauses determine who pays, how much, and for what. Limitation of liability clauses cap your exposure so a small project fee doesn't turn into a catastrophic payout.

In Practice

You're a consultant charging $10,000/month. Without a limitation of liability clause, your advice that leads to a client's $2 million loss could mean you're on the hook for the full $2 million, 200x your monthly fee. A liability cap set at 'total fees paid under the contract' limits your exposure to what you actually earned. That's the difference between a bad day and bankruptcy.