Legal Question in Business Law in California

Re: Limitation of liability and indemnification

Although these two words or phrases are likely to pop up in the same section, or near each other, in a contract, they are rather different in meaning.

A contract provision limiting a party's liability is just that - it's an attempt, at least, on the part of a party to litmit its financial liability to the other parties to a certain sum, or to losses of a certain kind, e.g., "damage in transit" or "the purchase price, less freight" or something of that sort. It may be an attempt to disclaim liability on any kind of implied warranty, for example. Clauses limiting a party's liability are sometimes enforceable, other times not, especially where so-called product liability is involved. If the automobile you buy has a bad design flaw that makes it dangerous, the dealer's and manufacturer's attempts to limit their liability probably won't hold up in court.

Indemnification is another concept entirely. An indemnity is sort of like insurance. The party giving the indemnity is called the indemnitor, and it agrees to protect the other party, the indemnitee, from financial harm due to some aspect of the contract, usually spelled out in the indemnification clause.

An indemnity provision may have the effect of limiting the indemnitee's losses if it becomes liable for something under the contract, because the liability (or the costs thereof) must be paid by the indemnitor; but as you see, the limitation of liability and the indemnification are not the same at all.

Re: Limitation of liability and indemnification

Limitation of Liability is a clause which sets out the type or maximum amount of damages that can be obtained if there is a breach of the contract.

Indemnification means that one party will cover the losses of another party.