This post is based on a question about limitation of liability that I answered on Quora.
Q. Why do technology contracts often carve breach of confidentiality out of the limitation of liability?
A. I’m going to start by broadening the discussion, a bit.
First, the carve-outs typically modify both limitation of liability and limitation of damages. So, whereas an agreement might include provisions both limiting? the total (dollar) amount of liability and liability for consequential damages, such limitations will not apply to the carved-out subject matter.
Second, the subject matter of the carve-outs typically includes not only breaches of confidentiality, but also indemnification obligations.
Here is why the carve-outs exist:
- The subject matter (confidentiality and indemnification) inherently have significant consequential damages components (outside the subject matter of the agreement, for which damages would be direct). As a result, consequential damages must be recoverable.
- Breach of confidentiality and indemnification obligations are very important. Consequently, there is a consensus that injured parties should have the broadest remedies available in these areas, i.e., there should be no limitation of liability.
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
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