This contract tip is about a drafting technique that is used to exclude random things from the contract's limitation of liability. I'm sharing this drafting tactic so you don't unknowingly approve an exclusion without realizing it.
A typical limit of liability provision says neither party is liable for damages in excess of a set amount. Many provisions exclude indemnification and breach of confidentiality obligations from the cap. And most lawyers are ok with those exclusions.
So when we see the limit excludes indemnification obligations in this agreement and breach of Section X (Confidentiality), we approve and keep reading.
Don't do that. Instead, stop and check these things right away before you move on.
First, check the indemnities. Search your document for indemnities. Check each place that an indemnity appears. They may be in places other than the indemnification section. Make sure each indemnity should be excluded and only applies to third-party claims. If they apply to direct claims, you may have unlimited liability for claims by your counterparty.
Second, read through the sections excluded from the cap. Are they limited to just obligations that should be uncapped? For example, sometimes I see sections labeled confidentiality include other things like data security and IP terms.
By putting a concept in a section and then excluding breaches of that section from the cap, you may be agreeing to uncapped liability and consequential damages for an unintended type of claim.
Get in the habit of checking these things as you are reviewing the limit of liability.
What other drafting traps do you find easy to fall into?
