Without a limitation of liability clause, your business has uncapped financial exposure to every user who suffers any loss — real or alleged — while using your service. A single lawsuit for consequential damages (lost business, lost data, lost revenue) can exceed the total revenue your product generates. EU-CRD-Art-25 permits businesses to limit liability to reasonable amounts, but only when the limitation is clearly stated in the contract. US courts generally enforce liability caps when they are conspicuous (written in ALL CAPS) and not unconscionably low. A missing clause means courts will apply the default — which is full compensatory damages with no cap.
Medium because the absence of a liability cap leaves the business exposed to consequential and punitive damages that could exceed total product revenue from a single user dispute.
Add a limitation of liability section to your Terms of Service. Write it in ALL CAPS — US courts require conspicuousness for enforceability, and all-caps is the established convention.
## LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT WILL [COMPANY],
ITS OFFICERS, DIRECTORS, EMPLOYEES, OR AGENTS BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES — INCLUDING LOSS OF
PROFITS, DATA, USE, OR GOODWILL — ARISING OUT OF YOUR USE OF THE SERVICE.
[COMPANY]'S TOTAL LIABILITY FOR ANY CLAIMS ARISING FROM THESE TERMS IS LIMITED
TO THE GREATER OF: (A) AMOUNTS YOU PAID IN THE PRECEDING TWELVE (12) MONTHS,
OR (B) $100 USD.
SOME JURISDICTIONS DO NOT ALLOW THESE LIMITATIONS. IF THESE LAWS APPLY TO YOU,
SOME OR ALL OF THE ABOVE MAY NOT APPLY.
Have a lawyer confirm the enforceability of this clause in your target jurisdictions — EU consumer protection law (EU-CRD-Art-25) imposes additional constraints for B2C contracts.
ID: legal-pages-compliance.content-clarity.limitation-of-liability
Severity: medium
What to look for: Enumerate every relevant item. Find the limitation of liability (or "limitation of remedies") section in the Terms of Service. It is typically under a heading like "Limitation of Liability," "Limitation of Remedies," or "Disclaimer of Liability." The clause should cap the total liability of the business — either to zero, to the amount the user paid in the last 12 months, or to another defined figure. Also look for a disclaimer of indirect damages (consequential, incidental, punitive, special, or exemplary damages). Check whether the clause is written in ALL CAPS — this is a US legal convention to make the disclaimer conspicuous, which some courts require for enforceability. Check whether the clause is reasonable: an unlimited liability cap (or no cap at all) is a legal risk; an unreasonably low cap (e.g., $1 regardless of circumstance) combined with a gross negligence carve-out may be better than no limitation.
Pass criteria: At least 1 of the following conditions is met. A limitation of liability clause exists in the Terms of Service. It caps the business's total liability (to zero or to fees paid). It disclaims indirect, consequential, and punitive damages. It is reasonably prominent in the document.
Fail criteria: No limitation of liability clause exists. Clause exists but only disclaims "all warranties" without addressing liability for damages. Clause is so vague it would not be enforceable.
Skip (N/A) when: No Terms of Service exists (flagged by tos-exists check above).
Detail on fail: Specify the issue. Example: "Terms of Service has no limitation of liability clause. Business's total exposure to user claims is uncapped." or "Disclaimer of warranties found but no cap on damages. Consequential damages are not excluded.".
Remediation: Add a limitation of liability section. Have a lawyer review this clause, as its enforceability varies by jurisdiction.
Example limitation of liability clause:
## LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT WILL [COMPANY NAME],
ITS OFFICERS, DIRECTORS, EMPLOYEES, OR AGENTS BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES — INCLUDING LOSS OF PROFITS, DATA, USE,
OR GOODWILL — ARISING OUT OF OR IN CONNECTION WITH THESE TERMS OR YOUR USE OF THE
SERVICE, EVEN IF [COMPANY NAME] HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, [COMPANY NAME]'S TOTAL LIABILITY
TO YOU FOR ANY CLAIMS ARISING FROM THESE TERMS OR YOUR USE OF THE SERVICE IS LIMITED
TO THE GREATER OF: (A) THE AMOUNTS YOU PAID [COMPANY NAME] IN THE TWELVE (12) MONTHS
PRECEDING THE CLAIM, OR (B) $100 USD.
Some jurisdictions do not allow the exclusion or limitation of certain damages.
If these laws apply to you, some or all of the above limitations may not apply.
The ALL CAPS formatting is intentional and convention-based in US contracts. Consult a lawyer about whether this is required or recommended in your jurisdiction.