Most limitation of liability clauses were written for a much simpler world. Two parties, one fee structure, one product, one performance chain. The clause sits unread in the contract for the life of the deal, and nobody finds out whether it works until something has already gone badly wrong.
Laura Frederick hosted Arohi Kashyap, Partner at Kashyap Partners, and Kay Lee, Senior Manager of Commercial Privacy at Recharge, for this discussion. Arohi brought the customer-side perspective from a transactional and privacy practice spanning California and India. Kay brought the vendor-side perspective from inside a commercial privacy function. The two seats made the conversation useful because every drafting move had both sides of the table represented in real time.
The format was new this round. Instead of starting from ideal clause language, each section began with an AI-drafted "slop" clause as the baseline and the panel worked through what was missing. The four fact patterns covered subcontracting and multi-party performance chains, tiered and usage-based pricing, joint development and co-creation, and reseller and channel partner agreements.
Here are our top ten takeaways from the speakers' comments during the webinar:
The standard mutual cap does almost no work in complex deals. The clause that says either party's liability is capped at twelve months of fees was written for a two-party, fixed-fee, single-product deal. The moment you add subcontractors, usage-based pricing, joint development, or a reseller chain, that language is silent on the questions that actually matter. Limitation of liability is also the one provision that almost never gets pressure-tested in the ordinary course, which means whatever is in the contract is what controls when something finally breaks. Treat it as a starting point, not a finished provision.
Make the cap explicitly cover the vendor's subcontractors. Silence on subcontractor liability in the cap is silence in the vendor's favor. From the customer side, you want a sentence that the vendor's aggregate liability includes any claim arising from acts or omissions of its subcontractors. From the vendor side, you want to preserve the right to seek contribution from those subcontractors. Both can coexist in the same clause if you draft them deliberately.
Channel direct claims to the vendor. When subcontractors are involved, a customer should not have to chase the subcontractor for recovery. A short provision requiring the customer to bring claims to the vendor, with the vendor managing any further contribution claims downstream, protects both sides. The vendor keeps control of the dispute. The customer gets a single accountable party.
Flow IP and confidentiality protections through to subcontractors. A vendor that takes data, IP, and confidential information is responsible for the subcontractors it hands those things to. The cleanest place to lock that down is in the confidentiality and IP clauses, with the vendor representing that it has back-to-back protections in place with any subcontractor. That representation matters because the customer cannot see the subcontractor agreement and cannot enforce it directly. Without the flowdown, the customer is relying on contracts it has no visibility into and no remedy against.
Anchor usage-based caps to a fixed dollar floor. A cap that floats with fees floats with usage, and usage rarely tracks risk. A vendor gets full access to a customer's systems and data during onboarding before there is meaningful usage volume, which means the risk profile is largely set on day one. The fix is to define the cap as the greater (or lesser, depending on side) of twelve months of fees and a fixed dollar amount. That keeps the cap from collapsing during low-usage periods when the risk profile has not changed.
Pin down the fee definition before it pins you down. "Amount paid" leaves credits, refunds, disputed amounts, and late fees ambiguous. "Paid and payable" sweeps in invoiced but unremitted amounts. Either choice can work. The drafting failure is leaving it undefined and having that ambiguity surface in the middle of a settlement discussion with a CFO asking exactly what the exposure is.
Tie the cap to the order form, not the MSA. Product portfolios change. The cap that was right for the core product is rarely right for a new AI-enabled module with new regulatory exposure. Order-form-level caps let the company evolve its risk allocation as the product evolves, without renegotiating the MSA every time a new SKU launches. This is also where the watch for multiple similar-sounding defined terms pays off, because reviewers default to whatever the section says without re-reading definitions.
Carve consequential damages back in around milestones and IP reps in joint development deals. A clean mutual waiver of consequential damages eliminates the recovery a co-development party most needs, because lost profit and lost launch windows are textbook consequential damages. The targeted fix is a carve-in that says the waiver does not apply to losses from breach of IP ownership representations or failure to deliver the agreed contribution by the agreed milestone. The other piece worth drafting upfront is a contribution allocation for partial-performance scenarios. A 50/50 split is rare in practice, and a pre-agreed allocation forces the conversation about who owns which break point that the deal needs anyway.
In reseller deals, negotiate for direct vendor obligations or disclosure of vendor terms. Privity with the reseller leaves the customer suing the wrong party for most of what goes wrong. Misrepresentation, billing errors, and support failures sit with the reseller, while data breaches, IP infringement, and product defects sit with the vendor. Pushing for direct vendor obligations in the reseller agreement is the cleanest answer. If that is not available, ask for disclosure of the material terms between the vendor and the reseller so you can see the actual liability posture you are inheriting.
Read the limitation of liability alongside the indemnity and insurance. A broad limitation of liability can override a generous indemnity in most jurisdictions, which means the cap is doing more work than its label suggests. The trifecta of limitation of liability, indemnification, and insurance has to be analyzed together. If the indemnity says you cover your subcontractors but the cap only counts your own fees, the customer is recovering against a number that does not match the exposure. Pulling any one out of context produces a misleading picture of what the customer can actually recover.
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