Risk Allocation
Contract University
Risk Allocation
Risk allocation provisions determine who bears the financial consequences when something goes wrong. These clauses are among the most heavily negotiated in any commercial contract — and among the most consequential if left unreviewed.
Definitions in This Topic
IndemnificationA contractual mechanism that shifts responsibility for specified losses, claims, or liabilities from one party to another.View →Limitation of LiabilityCaps the maximum amount one party can recover from the other for breach or other claims under the contract.View →Consequential DamagesIndirect losses that flow from a breach — such as lost profits or lost business opportunities — which contracts often exclude from recovery.View →Liquidated DamagesA pre-agreed dollar amount the breaching party must pay, set in advance because actual damages would be difficult to calculate.View →Duty to DefendRequires one party to pay for the other's legal defense costs when a covered claim or lawsuit arises, even before liability is determined.View →Hold HarmlessA promise by one party not to hold the other responsible for certain losses, injuries, or damages arising from the contract.View →
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