Legal Question in Business Law in California

Re: Capping Limitations of Liability

Generally speaking, the law disfavors such attempts to limit liability. However, the law does allow it in certain circumstances. Your likelihood of having such a provision hold up depends on many things.

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Regards,

Ben

Re: Capping Limitations of Liability

It sounds like you are describing an insurance policy. Insurers can indeed limit the amount they will pay on negligence claims, and the insurance industry would not exist if they couldn't.

Insurers base their premiums on (among other things) how much protection the customer wants. All else being equal, a customer who wants $500,000 of insurance coverage will have to pay more than someone who wants $100,000. If the insurer could not limit its exposure then everybody would pay for the smallest policy limits available, but would potentially be able to claim an unlimited amount from the insurer later on. No insurer would issue policies under these conditions, except perhaps in exchange for extremely high premiums.

Under most circumstances you cannot limit your own liability for negligence, but your insurer can limit how much of your liability it will cover.

I hope this helps.

Re: Capping Limitations of Liability

That provision is unenforceable.

Re: Capping Limitations of Liability

First, "cap limitations" sounds akin to a double negative. I assume you mean to ask whether your liability can be "capped" or "limited" by contract, and not whether you can "cap a limitation."

I would tend to go with Mr. Berger's answer. A contract provision placing a cap on a party's liability for his own negligence may be enforceable, because the law sees nothing wrong with contracting parties allocating risks among themselves.

Such a provision is more likely to be upheld when the bargaining powers of the parties are more nearly equal, when the provision is freely negotiated rather than baked into a pre-printed "take-it-or-leave-it" form contract, and when the party giving up rights was represented by an attorney.

Such provisions are usually not enforceable against deliberate misconduct, and are never enforceable to protect a party from the consequences of his own fraud.