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IT contracts
A limitation of liability clause caps what a supplier must pay under an IT, software or SaaS contract and lists the losses it will never pay. It matters for insurance because professional indemnity (PI) cover pays only what you are legally liable for, up to its own limit: if the contract cap is higher, or some liabilities are uncapped, the difference falls on your business.
Part of: Professional indemnity for IT professionals
In short
Most IT and SaaS contracts cap each party’s liability, usually at a fixed sum or a multiple of the fees, and exclude indirect loss and lost profits. Some liabilities sit outside the cap: death or personal injury caused by negligence cannot be limited, and customers often negotiate carve-outs or higher super-caps for data protection, confidentiality, IP indemnities and wilful default. Between businesses, a cap on standard terms must pass the reasonableness test in the Unfair Contract Terms Act 1977, and courts read caps by their exact words. Keep the cap at or below your PI limit, on a matching basis, and avoid uncapped indemnities you cannot insure.
Last reviewed 7 October 2026 by the Apex professional indemnity team.
A liability clause in a technology contract usually has four parts. Read them together: a generous cap can be undone by a wide carve-out.
| Part | What it does | Typical drafting |
|---|---|---|
| Unlimited liabilities | Lists what is not capped at all | Death or personal injury caused by negligence, fraud, and anything the law does not allow you to limit |
| The cap | Sets the most one party will pay | A fixed sum, or a multiple of the charges. The government’s Model Services Contract starts from 150% of the charges in the previous contract year |
| Excluded losses | Losses that are never recoverable | Indirect or consequential loss; loss of profits, revenue, savings, goodwill or data |
| Carve-outs and super-caps | Move named liabilities outside the main cap, or under a separate higher one | Data protection breaches, confidentiality, IP infringement indemnities, wilful default or abandonment |
Caps come in two main shapes. An aggregate cap is one total for all claims, sometimes reset each contract year. A per-claim cap applies afresh to every claim. The Cabinet Office guidance on its Model Services Contract notes that annual aggregate caps are used “to align with typical insurance policy terms”, and warns that a per-claim cap arguably means there is no maximum at all.
In England, Wales and Northern Ireland, Part I of the Unfair Contract Terms Act 1977 (UCTA) controls exclusion and limitation clauses between businesses. Scotland has its own rules in Part II. For an IT supplier, the provisions that matter are these:
Schedule 2 adds guidelines such as relative bargaining strength, any inducement to accept the term, and whether the customer knew of it. The Act applies them formally to goods contracts, but in Kingsway Hall Hotel v Red Sky IT [2010] EWHC 965 (TCC) the judge called them helpful and held a hotel software supplier’s standard limitation terms unreasonable: bargaining power was unequal, the parties had negotiated only on price, and the hotel got no inducement to accept the terms.
Section 11(4) is where your insurance becomes evidence: a cap far below the cover you hold, or could readily buy, may be harder to defend. UCTA does not apply to consumer contracts; if you sell software or services to consumers, sections 47 and 57 of the Consumer Rights Act 2015 stop you excluding the core statutory rights.
Courts start from the words. Four technology disputes show how much turns on them.
PI insurance pays what you are legally liable to pay a client for breach of professional duty, plus defence costs, up to the limit and subject to the policy terms. The contract sets how much you can owe; the policy sets how much of that is insured.
| Contract position | What PI usually does | Where the gap is |
|---|---|---|
| Cap at or below the PI limit, on the same basis | Can respond up to the capped amount, subject to the terms and excess | Small, if the wording fits the work you do |
| Cap above the PI limit | Pays up to the PI limit only | Everything between the limit and the cap is uninsured |
| Per-claim cap, but an aggregate PI limit | One limit for all claims in the policy year | Several claims can exhaust the policy while each is still inside the contract cap |
| Uncapped indemnity, often for IP or data | May respond up to the PI limit, if the loss is covered at all | Everything above the limit. Cabinet Office guidance says plainly that unlimited indemnity cannot be insured |
| Warranties, fitness for purpose or indemnities wider than negligence | Commonly excluded or limited by a contractual liability exclusion | Liability beyond what you would owe under the general law |
| Data protection super-cap | Some PI wordings cover data claims; others leave them to a cyber policy | Depends on how the two policies fit together |
Check three things in your wording: whether the limit is each and every claim or in the aggregate; whether there is an exclusion for liability assumed under contract, and what it carves back; and whether the insured activities describe what the contract actually buys, such as hosting, managed services or software licensing, not only “IT consultancy”.
If this affects your business, these are the points a broker will ask about:
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Apex Insurance Brokers is an independent insurance broker based in Bristol, established in 2009 and authorised and regulated by the Financial Conduct Authority. We are not tied to one insurer: we work with over 30 markets, including Lloyd’s syndicates through wholesale brokers, and every client has a named broker who handles the placement, mid-term changes, certificates for clients and the renewal.
Yes, between businesses, within limits. You cannot restrict liability for death or personal injury caused by negligence. Other limits on negligence liability, and caps in your written standard terms, must be reasonable under the Unfair Contract Terms Act 1977, which looks at your resources and insurance. Consumer contracts fall under the Consumer Rights Act 2015.
There is no fixed figure. Reasonableness is judged at the time of contracting, looking at bargaining power, whether the terms were negotiated, the supplier’s resources and the insurance available. Many contracts use a multiple of the fees; the government’s Model Services Contract starts from 150% of a year’s charges. The cap should also sit comfortably within your PI limit.
It should not exceed it, and it should be on the same basis. If the contract cap is higher than your limit, the difference is uninsured. If the cap applies per claim but your PI limit is an annual aggregate, several claims can use up the policy while each remains inside the cap. Many suppliers set the cap at or below the limit.
Only up to the policy limit, and only if the loss falls within the cover. An IP or data indemnity may be partly insured under a technology PI or cyber policy, subject to the terms, but no policy matches an unlimited promise. Cabinet Office contract guidance states that unlimited indemnity cannot be insured.
No. Lost profits can be a direct loss, so excluding only “indirect or consequential loss” may leave them recoverable. Careful drafting excludes loss of profit “whether direct or indirect”. Even then, the Court of Appeal held in 2022 that excluding loss of profit, revenue and savings did not exclude a customer’s claim for wasted expenditure on a failed IT system.
Send us the liability and insurance clauses with your proposal and a broker will check them against the PI limit and wording you need. Or call 0117 325 0027.
Start your PI proposal Call 0117 325 0027Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances. Cover is always subject to the insurer’s acceptance and the policy terms, and this page does not guarantee that cover will be available or on what terms.
