Liability refers to the responsibility, under law or equity, for which a party is bound or obliged to make restitution, compensation, or satisfaction to another for loss or harm. A limitation in liability is a limit placed on the terms or nature of responsibility for loss or harm. It may be expressed in terms of maximum percentage of fault, dollar amount, type of harm or loss, or causative factor, beyond which a party openly denies any responsibility.
Limitations in liability may take several forms, the most common of which are written clauses contained in warranties, disclaimers, waivers, insurance policies, and contract terms. They also may take the form of “exculpatory clauses” which clear or tend to clear parties from any fault or liability for loss or harm to others whatsoever. Governmental entities may limit their exposure to liability for claims by citizens and members of the public (See, sovereign immunity).
Limitations in liability also differ in what they limit. There may be a cap or ceiling on monetary damages; an exclusion of certain forms of damages (e.g., punitive, incidental); or an exclusion for certain kinds of harm (e.g. those caused by acts of God or forces of nature). In product purchases, liability may be limited to the purchaser only, and not to third persons or subsequent owners/users.
In a way, limitations of liability are, for the most part, actual (or tantamount to) terms of contract, and generally enforced under principles of contract law. They generally require actual or implied notice and the consent of all parties to the transaction,—proof of which is generally deemed to be conclusive as to acceptance of the limitations.
States have different laws regarding the extent to which persons or business entities may limit their liability to others. Since each state may have several laws dealing with limitations of liability (according to the application), contacting the subject state’s department of insurance is advised for guidance and clarification. (See Organizations listed below.)