L5M3 practice question 2 of 25

What is the purpose of a limitation on liability clause?

Full set: 120 questions

Answer options

A: it provides an accurate pre-estimate of potential loss

B: it caps a company's exposure to risk Correct answer

C: it allows a party to claim on insurance if something goes wrong

D: it passes the responsibility to the other party

Correct Answer:

B. it caps a company's exposure to risk

Explanation

A limitation of liability caps a company's exposure to risk. In SOME cases this may mean that the responsibility passes to the other party- but not always. For this reason option 2 is correct and 4 isn't.
Option 1 is the definition of liquidated damages and 3 is just a made-up answer. See p.20 for more information on Liability

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