Limitation of Liability Clauses in Ontario: What They Actually Protect
Limitation of liability clauses are intended to cap exposure.
They do not eliminate it.
The Function of the Clause
A limitation clause sets a maximum amount that one party can recover from the other.
It may also exclude certain types of damages, such as indirect or consequential loss.
This creates predictability in theory.
Interaction With Other Provisions
The effectiveness of a limitation clause depends on how it interacts with other parts of the agreement.
An indemnity may sit outside the limitation. Certain obligations may be carved out. Some claims may not be subject to the cap.
The clause cannot be assessed in isolation.
Drafting vs Reality
A clause that appears comprehensive may not apply in the circumstances that matter most.
If key risks are excluded from the limitation, the protection is narrower than it appears.
The Practical Takeaway
A limitation of liability clause does not define total exposure.
It defines exposure within a specific structure.
Understanding that structure is what determines its value.