Limiting Liability both Honestly and Effectively

Lynden Renwick
Attorney; Managing Partner at Out-House Attorneys, LLC.
Mike Whelan
Chief Community Officer

As the sales team pushes for deals to be done, your job is to address risk. How can you use limitation of liability clauses to cap exposure?

In this episode of the Contract Teardown, commercial lawyer Lynden Renwick shares three examples of limitation of liability clauses. He details the good, bad, and ugly versions of a liability limiting clause, then gives his multi-step model for managing risk both within and outside the contract.

Renwick shines a light on important limitations of liability features, such as:

  • Carveouts,
  • Defined damages,
  • Caps on liability, and
  • Clear and accurate section headings.

THE GUEST: Lynden has been every kind of commercial lawyer there is: an Am Law 100 corporate attorney, General Counsel to a U.S. Defense Contractor, and commercial litigator. Now the Managing Partner of a nationwide commercial practice, he uses his experience to provide Overflow Support to In-House teams at Fortune 500 companies. Originally from Australia, Lynden now lives on the United States’ east-coast with his wife and two young sons. He is also a published novelist and Guinness World Record holder.

THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at

If you are interested in being a guest on Contract Teardown, please email us at

Episode Links

The Contracts:


Guest’s Links: Email | Website | LinkedIn

Interview Transcript

Mike Whelan In this episode, attorney Lynden Renwick gives us three examples of a limitation of liability clause. So let’s tear it down. Lynden Renwick, welcome to the Contract Tear Down Show. How are you today, sir?

Lynden Renwick I’m doing great. Great to be here. Thank you.

Mike Whelan I’m excited, as I often you know, if I’m being honest. How excited are we about contracts? I’m unusually excited about this contract conversation because we are actually going to do sort of a not a good, better, best. Let’s get mean and call it a good, bad and ugly certain kinds of agreements. I’ve got three documents in front of me that we’re going to be comparing, Lynden. Tell me what these documents are. When are we going to see the section that we’ll be talking about and comparing?

Lynden Renwick Gotcha. So three different contracts, two different species. The first one is going to be a software license agreement and the other two are master services agreements. I’ve tried to choose it from, you know, good samples of good, bad and ugly. So we can really judge these things for the mess that they can be. And I think in doing so, we’re going to uncover some pretty good drafting secrets when it comes to these important terms.

Mike Whelan We’re going to do that. We brought you on because you’re you tell us about you, your background. What brings you to documents like this?

Lynden Renwick Gotcha. Well, I am a career commercial attorney. I’ve been an attorney in Australia and the U.S. and I’ve been every kind of corporate lawyer there is. I’ve been a M&A and Law 100 corpo, I’ve been a GC for a federal government contractor, a commercial litigator, and now I own my own commercial practice and house attorneys.

Mike Whelan I love it. And the name of your firm again.

Lynden Renwick It’s Out-house Attorneys LLC.

Mike Whelan It’s a tongue in cheek just underlining this because I appreciate a dad joke. I am a man who loves a dad joke. You are. Instead of in-house counsel, you have turned it to outhouse, which I enjoy. Dad jokes for the win. All right, let’s dig into this document. I’m going to go to the first one, which is this per night. Is that the name of the company? This is this license agreement. I’m going to jump down to section ten title limitation of liability. There’s a lot of capital words here. I won’t read all of this. Why don’t you jump to the part of this that is concerning you first.

Lynden Renwick Gotcha. Well, first on this, I’ll mention that this is an example of a good limitation of liability clause. If you’re a parent, you know, this is a software license agreement for the use of their virtual windows printer as the TIFF image printer. Now, this is a good limitation of liability clause if you’re a pure net for one reason you’ve heard it pointed out it’s all in capitals. Now, some jurisdictions will only enforce limitation of liability or exclusions of damages clauses if they are conspicuous. And that can manifest itself in a couple of ways. It can be emboldened. It can be in all capitals. It can be a mixture of matter. Most people will only telegraph it with the use of a heading, like they have limitation of liability. In this instance, they’ve almost ticked all the boxes. Good heading, underline heading and all capital terms.

Mike Whelan Yeah. I mean, you could also signify by emojis, I guess, if you’re into that kind of thing. But I mean, there’s a question that I think is going to come up again and again throughout these documents, which is about how unilateral the thing is. What do you think about the relationship that this is creating in this particular section?

Lynden Renwick So in this one, you’re bang on. It’s a good example for pure net because it does have unilateral application. Now, two things you’re typically going to see in a limitation of liability clause number one is an exclusion of certain damages, and they have that here. In the first instance, they’re saying in no event will they, the licensor, be liable for any special, indirect, incidental or consequential damages, howsoever caused. They’re immediately calling out extended theories of liability or extended damages to reduce their overall liability or the things they can be sued for. And the next thing, the number two thing you’ll see is a general cap on the monetary value of their liability. And in the last sentence is here, it has in any case, licensors and their suppliers. Entire liability under any provision of this agreement will be limited to the amount received by the licensor from the licensee. Now, the thing that’s important to note there is, number one, again, unilateral application. It’s only peer in, that’s liability that’s being capped here. The licensee will still face unlimited liability for any cause of action under this contract. The second thing they’ve said that the liability will be capped only to the amounts actually received, not the value of the contracts, that this contract is free to call it $1 million, but the customer doesn’t pay all those fees. The maximum liability cap is going to be only whatever that license is actually being paid. So that’s another sort of sneaky way of actually reducing a potential liability cap or at least limiting it to the amount that you’ve actually received from a customer under the contract.

Mike Whelan Hmm. Another theme that I know is coming up is this idea of an indemnity carve out. Tell me what that is and what are you seeing in this particular section?

Lynden Renwick Gotcha. So we’ve mentioned that there’s not only those two things that you’ll see under limitation of liability, the exclusion of certain damages and the liability cap. Another thing that you’ve frequently seen, limitation of liability clauses is exceptions or carve outs. And in normal cover or a frequent carve out that you’re likely to see is a car that for indemnity obligations. Now, indemnity is one party promising to another party that they will make them whole for any loss or damage or claims that that party suffers because of the first parties actions, and it can be expressed in a variety of different ways. Important to note here, this clause does not have an indemnity carve out. So even if pure net is offering indemnity obligations and they are under this contract, those indemnification obligations will also be subject to the liability cap. Now, that kind of undermines the whole point of an indemnity, because the point of an indemnity is to make the aggrieved party whole. If there’s an A cap, if there’s a cap on that, and it really prejudices that that party’s ability to even be made whole.

Mike Whelan Right up to that amount. Well, let’s jump over. I mean, if I’m understanding correctly, you like this version, right?

Lynden Renwick This is your best, is that this is good if you’re pure in it. And the other thing that that really warrants mention because it’s it’s very crafty in its execution. The other thing that they’ve added to that liability cap or in the final sentence they’ve added this limitation of liability is cumulative with all such parties expenditures being aggregated to determine satisfaction at the limit. And so even just their expenses are then having to pay out costs that will be added or at least put towards their liability cap or that limit. Oftentimes, it’s not only claims or losses or damages of the Indemnified party or the aggrieved party coming forward. Pure Net is saying that even if we have to expend money in satisfaction of a claim, whatever that is, even attorney’s fees that will apply towards that liability cap. So that’s that’s fantastic. If you’re if you’re a pure net.

Mike Whelan Gotcha. All right. Well, let’s jump to this May between GE and Askew. Well, we’re going down to section nine on this one. It’s called indemnification and limitation of liability. Let’s compare that to the first one. What are you seeing in this agreement?

Lynden Renwick Well, one thing I should say for this one, because this one is helpful for context in this master services agreement, you’ve got G.E. committing to work with Sky Technologies, intellectual and technological, intellectual property. They’re saying that we will unlock value, accelerate growth and monetize your technology by assessing value, enhancing and defending your intellectual property and introducing you to new markets and customers. So that’s a very significant relationship and involves a lot of trust. However, under this limitation of liability clause, you’ve got G.E. limiting their liability. Now, in that first thing, that exclusion of certain damages they’ve done, that they’re excluding their liability for certain damages, including consequential, incidental, indirect, etc., with the exception of their confidentiality obligations. So here we have a confidentiality carve out through the exclusion of certain damages. But when we looked at the liability cap in the last sentence, it says the company’s liability to scuba under any SJW under this agreement shall be limited to the value of the CW. Now, unlike the exclusion of certain damages clause for they had a carve out for their confidentiality obligations, this liability, a Clapp cap, is absolute. So when we go back and we consider just how significant this relationship is, where G.E. is going to be taking a look at their IP, defending it, enhancing it, accelerating growth, introducing you to new customers. There’s a lot of trust there. There’s a lot that’s being handled there. Their most valuable IP is being handled. Their reputation is being put on the line. But then we have G.E. saying, look, even if we perform negligently, even if we violate applicable laws, even if we fail to comply with your integrity policies, our liability is going to be kept to the maximum value of the CW. So not great if if you’re Sky Technologies here, you know, G.E. potentially a reputable company. But to the extent that they fail to perform their obligations adequately, or if they perform in a way that really brings damage to Sky Technologies, they can really be left holding the bag.

Mike Whelan Yeah, I feel like and correct me if I’m wrong, I’ve done no data analysis to validate this. I feel like this is common. The idea that we’re going to cap the liability to the amount of the value of the the agreement itself. I mean, you see this in click through agreements in on like Twitter, right? You see these kinds of caps come up. And obviously, if it got to the point that this was filed with the SEC, which is why it’s online, CIDR, then we know it worked, right? These people signed this agreement. They got this through. How are you feeling? If you see this in a in a document, these kinds of caps, do you feel like this is so standard that if you push back, you’re going to kill that agreement? Is this just a kind of thing we all sign up for? Because this is what we do.

Lynden Renwick Now, what you’re seeing here in points one or two, rather standard. But what’s missing here is those carve outs or those exceptions. If I saw this come across my desk, the ones that of the carpets, I would immediately dropped in with no fear or anxiety about pushing back on this. I would want carve outs for the limitation of liability cap or the liability cap. I would want carve outs for, let’s say, violation or infringement of third party intellectual property rights. I’d want carve out for compliance with applicable laws in violation of applicable laws. And if I’ve got reps and warranties in there, to the extent that they have to comply with my integrity policies, then I would probably want to carve out for breach of the reps and warranties in there. That way, if they do any of these things, they’re going to face unlimited damages or, you know, we can negotiate a super cap. We can move into an indemnification obligation. I’m just uncomfortable with the idea that their liability overall is going to be capped when, you know, if you’re making all these promises in a contract, expect to stand by them and capping them kind of undermines that message.

Mike Whelan Well, let’s jump to the bad then, because we have one more agreement, an absolute agreement. I’m going down to nine. This section is called Disclaimer of Warranties, Limitation of Liability, Indemnification. It’s got ABCD and we’re talking about C and E specifically. C is fairly long. It’s got indemnification against infringement points to the section in here that is bugging you. What do you think is bad about this particular one?

Lynden Renwick So this is bad for a couple of reasons. The first is, as you’ve noted in the heading, it says indemnification against infringement. That’s that’s pretty common. You know, if you’re going to violate another person’s intellectual property rights, the other party wants protection against those third party infringement claims in the event that they are taken against that party. You then have this lengthy text, several lines of text outlining this infringement indemnity. But what really annoys me about this clause is sneakily tacked on to the end of it. It says or claims damages or liabilities relating to this agreement, the performance of the agreement or the deliverables. That is an incredibly broad indemnity obligation and and unfathomable expansion of what was originally telegraphed to be just an indemnification against infringement. This is having the other party or the Indemnified Party indemnify for any claims coming out of the contract, whether it’s for breach or otherwise. They’re indemnified for things including the performance of the contract, which can include garden variety negligence, which, by the way, most insurers won’t cover for all the deliverables and by extension their the performance thereof, their maintenance, their compliance with applicable laws to compliance with third party intellectual property and privacy rights. Considering this has just been flagged to be an indemnity against infringement. It’s anything but. It’s it’s an indemnity for almost everything conceivable under this contract. So I’m really irked by it because the heading that they’ve got, in my opinion, just misrepresents the reality of the obligation.

Mike Whelan Well, in jumping down to E, we’ve got a similar section, this limitation of liability, except for claims related to confidentiality or infringement of intellectual property rights, neither party will be liable to the other for special, indirect or consequential damages incurred or suffered by the other arising as a result of or related to the performance of developer’s work, whether in contract, tort or otherwise, even if the other has been advised of the possibility of such loss or damages. Are you seeing the stuff that you want to see here in terms of exclusions and liability caps?

Lynden Renwick No, not particularly important to note here. Again, this is a potentially misleading heading where it says it’s a limitation of liability, but then all that it does is exclude certain damages, which, as we’ve said, that’s that’s one part of what you’re typically saying, a limitation of liability clause. But it’s missing that second piece, which is where is the overall liability cap? So importantly, we’ve got an instance here where the developer is going to be facing, you know, unlimited liability attached to incredible indemnification obligations. But then we’ve got no corresponding obligation coming from from the customer in this instance. So I really don’t like it. I would have liked to have seen as part of that limitation of liability clause, a liability cap, rather mutual or otherwise. And considering the scope of the developer’s indemnification, I’d want some kind of monetary cap or liability cap or super cap on this if I was representing them. It’s it’s very, very, very bad for the developer in this instance.

Mike Whelan And I’m thinking sort of big picture stepping back and I’m going to ask the child’s question as I would do, which is, why are we doing this? What is the purpose in these kinds of sections in the first place? I feel like I can see the two bosses or the salesperson and the boss or whoever at the two companies saying, and I don’t care. You know, this is a section I’m probably never going to read. What? We care about is all the stuff that we did at the beginning. But boy, I bet the lawyers care about this section because this is what the lawyers are asked to do, which is to protect against the risk. And this is a tool we use to do it. How do you think about balancing that need to boy, we just need to get this deal done. And if I don’t do this right, I’m going to be the one who gets fired. How do you think about these sections writ large?

Lynden Renwick You’ve touched on a couple of things. The first is that there’s that natural, natural tension between what I call the sales functions and the risk functions. Sales wants to go out there and get the deals, get the sales move, get the money and move on to the next one. And the flip side of that is you’ve got the legal saying, hang on, let’s examine the exposures here. That’s minimize our liability, let’s manage our risk. And that’s what these limitation of liability clauses are designed to do. They’re there to stop loss. And just like any good budget or anyone who’s trying to make money. Stopping your losses. Stopping your expenses is just as important as making more money. And so we put the limitation of liability clauses. They are there to do a stop loss. They’re there to say, if you do something wrong or if you mess up, you stand to lose no more than X. And the corresponding piece of that or the next step of that is to make sure that you have insurance that covers the enumerated claims, at least up to that figure, or at least up to that figure, multiplied by, you know, how many customers may be affected, how many contracts may be affected by a single breach. And so, one, how I manage it. You have to work cross-functionally with your entire team. You have to work with the sales team to let them know that you are there as a support function. But you also need to manage their risk and have them understand why these clauses exist. You also need to work with finance to actually look at your insurance policies, see what you’re covered for, what are the liability? What are the caps? Is it on a per occurrence or aggregate basis? Are there any riders or things in your insurance policies that may invalidate things? Look at how many agreements that you have. Take a look at the indemnification obligations that the liability caps that you do or don’t have and figure out what is your cumulative liability across all of your contracts and then assess, do I have adequate protection against these as a last thing I guess to say, to pull this together. Step one, you want to eliminate or exclude what you can. After that, you want to limit what you can’t and what you can’t limit. You want to insure for and what you can’t exclude. Limit, earn. Sure you want to manage. And that’s where you’re going to get your operational cross-functional support coming in and say, Hey, team, this is what we need to do to reduce our operational risk or to reduce the risk of some of these things manifesting while we’re performing the service. And so while we’re managing this relationship.

Mike Whelan Well, that’s a really good summary and breakdown of sort of the thought process. So I appreciate that. Lynden, we are grateful for you sharing this common section that gets all too commonly overlooked. If people want to reach out to you to learn more about your practice and about sections like this. What’s the best way to contact you?

Lynden Renwick I am forever on my email, so best way is email at Renwick, R E N for November wick at Outhouse Attorneys, all one word, dot com. Or you can go on our website

Mike Whelan Awesome. Well Lynden we will include that as well as a link to these documents over at the blog at slash resources. And if you want to be a guest on the contract, tear down, show the beat-up documents like this. Just email us. We are at community at law insider dot com. Thank you again, Lynden. We will see you all next time.

Lynden Renwick Thanks Mike.


Lynden Renwick
Attorney; Managing Partner at Out-House Attorneys, LLC.
Mike Whelan
Chief Community Officer

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