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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