Back to the Basics | Post #13

Author: Luiza Rey

Why your limitation of liability clause might be doing nothing.

Almost every contract says something like: “Total liability under this Agreement shall not exceed the fees paid.”

Sounds safe.

But in real deals, that protection often disappears.

Here’s how, in plain English.

1. Another Clause Quietly Cancels It

Many contracts include aggressive language like: “Notwithstanding anything to the contrary…” This phrase basically means: “Even if something else in this contract says the opposite, this rule wins.”

If that sentence appears inside an indemnity, IP, confidentiality, or data protection clause, it can override your liability cap.

Example: Your liability is capped at €100,000. But the IP clause says you are fully responsible for infringement “notwithstanding anything to the contrary.”

Result? The IP exposure may not be capped at all. Your cap exists, but it doesn’t apply where you thought it did.

2. Indemnity Might Not Be Capped

Indemnity means: “If someone sues you because of something I did, I will cover your losses.”

Many founders assume indemnity is automatically limited by the liability cap.

That’s not always true.

If the contract does not clearly say: “Indemnity obligations are subject to the limitation of liability”

A court may treat indemnity as a separate promise, outside the cap.

So your general liability may be €100k… but your indemnity exposure could be unlimited.

And indemnity is usually where the biggest claims happen.

3. Your Cap Doesn’t Match Your Insurance

Let’s say: Your liability cap is €1 MM. Your insurance only covers €500k. Or worse, the policy excludes the type of claim triggered by your indemnity.

Now you have a gap.

Or the opposite happens: You negotiate a €200k cap. But indemnity carve outs make exposure unlimited. Your insurance doesn’t respond the way you expect. The legal wording and the rest don’t align.

That’s where financial risk appears.

Real Example

I reviewed a deal where the client believed liability was capped at contract value.

But: Several clauses started with “notwithstanding anything to the contrary.” Indemnity was not expressly tied to the cap.

On paper: capped liability. In reality: potentially uncapped exposure.

What Sophisticated Drafting Does Differently

• Clearly states that the limitation clause governs the whole agreement unless explicitly carved out.

• Narrowly defines carve outs instead of using broad language.

• Expressly confirms whether indemnity is inside or outside the cap.

• Checks that the cap matches insurance and real commercial risk.

  
  

Because liability caps don’t usually fail due to one bad sentence.

They fail because of structural conflict with everything around them.

By Luiza Castro Rey