Definition of Liability Clause - Finance Glossary | Capterra (2024)

A liability clause is a section of a contract that limits the amount of money one party has to pay another if damages specified in a business contract between the two parties occurs. Typically, liability clauses limit one party’s liability to a fixed dollar amount. For instance, say a couple hires a construction company to build a patio in their backyard. In the business contract between the two parties, there is a $5,000 liability clause. If the patio were to collapse and destroy the couple’s outdoor furniture along with it, the construction company would only have to pay the couple $5,000 to account for the damages accrued. Businesses often include a liability clause in their contracts to limit the amount of fees they would have to pay their customers if anything were to go wrong with their product or service offerings.