A contract clause that caps the total damages one party can seek from the other, typically to the fees paid under the contract.
A limitation of liability clause caps the maximum amount of damages a party can be held responsible for under a contract. The most common cap is the total fees paid by the client under the agreement during the 12 months preceding the claim. For a company charging $5,000/month, this limits liability to $60,000 — even if a bug in their software caused a million dollars of damage to the client.
Without a limitation of liability clause, a vendor providing services could theoretically be liable for unlimited consequential damages if something goes wrong. For software companies, consultancies, and other service businesses, unlimited liability exposure is existential — a single bad outcome could result in damages far exceeding any revenue the relationship generated.
Limitation of liability clauses typically exclude certain types of claims where caps would be inappropriate: IP indemnification (where the vendor is defending the client against a third party), data breaches (where statutory damages may apply), fraud, and gross negligence. The exact carve-outs are negotiated. Clients often push back on liability caps, and the negotiated result reflects the relative bargaining power of the parties.