This contract tip is about where and how your limit of liability provision appears in a contract can result in it being unenforceable.
Here are two ways that happens:
1. It's in the same section as another unenforceable provision
Some limits of liability are disregarded when they appear in the same section as an unenforceable provision. They are in the wrong place (adjacent to an unenforceable provision) at the wrong time (during a litigation or arbitration involving the unenforceable provision).
Let me explain how this happens. When there is an unenforceable provision, the courts have to decide what to do. Each U.S. state has its own rules of how to deal with it. These rules are called the blue pencil rules.
Under some blue pencil rules, the court deletes the entire unenforceable provisions and enforce the rest of the contract. If your limit of liability is in the same section as the problematic one, you may lose them both.
2. It's not conspicuous
Limits of liability must be conspicuous, which means easily visible to the reader. Some use all caps, but you don't have to for most B2B contracts.
The critical thing is not to bury it. Don't stick it in the one-paragraph boilerplate provision between severability and waiver. Don't drop it casually as the last few sentences of a long audit clause. Give it a top-level in your numbering scheme. So Section 7, not Section 7(a)(2)(i). Then make sure you label it as the limit of liability. Don't label it as "Risk Adjustments" or some other confusing heading.
Are there any other circumstances where LOL placement affects its enforceability?
