Limitation of Liability Clauses in Texas Commercial Contracts: A Dallas Business Law Attorney’s Guide to What Holds Up and What Gets Carved Out

The liability cap is usually the last clause anyone reads and the first one that matters when a deal goes sideways. Texas enforces these provisions more readily than many states, so the number you skimmed past at signing may be the only number a court cares about two years later. Ask any Dallas business law attorney who has litigated one: the fight is rarely about whether caps are legal. It is about whether this cap was drafted well enough to survive, and whether the claim falls inside it.

Are limitation of liability clauses enforceable in Texas?

Yes, and Texas courts enforce them readily between sophisticated commercial parties. In Bombardier Aerospace Corp. v. SPEP Aircraft Holdings (Tex. 2019), the Texas Supreme Court upheld a waiver of exemplary damages and applied the parties’ liability limitation even where the jury had found fraud, reasoning that businesses negotiating at arm’s length may allocate risk as they see fit.

Enforceability turns on drafting, not fairness. Texas applies fair notice requirements to provisions that shift or eliminate liability for a party’s own negligence. Two rules come out of Ethyl Corp. v. Daniel Construction Co. (Tex. 1987) and Dresser Industries v. Page Petroleum (Tex. 1993): the express negligence doctrine, which requires that intent be stated in specific terms within the contract’s four corners, and conspicuousness, which borrows the UCC standard that a reasonable person ought to have noticed the language. Texas appellate courts, including in Dallas, have extended both to clauses that cap rather than eliminate liability. In practice that means capital letters, bold type, a separately captioned section, or contrasting color. A limitation buried mid-paragraph on page nine of a form services agreement is the one that gets struck.

What does a consequential damages waiver actually block?

It blocks losses that flow from the breach indirectly, not the core value of the bargain, and that distinction decides most disputes. Direct damages are the difference between what was promised and what was delivered. Consequential damages result naturally from the breach but not necessarily from it: lost profits on collateral transactions, reputational harm, downstream production losses.

The Texas Supreme Court sharpened this line in Signature Industrial Services v. International Paper (Tex. 2022), holding that lost profits on the contract at issue are direct damages while lost profits from separate dealings are consequential, and reducing a large award accordingly. The lesson for drafters is uncomfortable: a clean consequential damages waiver does not shield you from a benefit-of-the-bargain claim. If you want that capped, the dollar cap has to do the work. Note also that under Business and Commerce Code Section 2.719, a limited remedy that fails of its essential purpose can be set aside entirely.

What can a Texas contract not limit?

Some exposures survive the cap regardless of what the parties wrote. The recurring ones:

• Deliberate wrongdoing. In Zachry Construction v. Port of Houston Authority (Tex. 2014), the court refused to let a no-damages-for-delay clause shield the owner’s own intentional interference with the work.
• Gross negligence. Texas courts have been reluctant to let a party contract out of its own gross negligence, and the question is unsettled in commercial cases, which is why careful drafters carve it out rather than litigate it.
• Fraudulent inducement, unless the contract includes a clear and unequivocal disclaimer of reliance. Schlumberger Technology Corp. v. Swanson (Tex. 1997) and IBM v. Lufkin Industries (Tex. 2019) confirm that a properly drafted disclaimer can defeat the claim outright.
• DTPA claims. A Deceptive Trade Practices Act waiver is valid only if it satisfies Business and Commerce Code Section 17.42: written, signed, conspicuous, not taken from a party in a significantly disparate bargaining position, and made by someone represented by counsel of their own choosing.
• Indemnity in regulated sectors. The Texas Anti-Indemnity Act (Insurance Code Chapter 151) voids most construction indemnity for the indemnitee’s own negligence, and the Oilfield Anti-Indemnity Act (Civil Practice and Remedies Code Chapter 127) requires mutual indemnity backed by insurance, capping unilateral obligations at $500,000 of coverage.
• Shortened deadlines. Under Civil Practice and Remedies Code Section 16.070, an agreement limiting the time to sue to less than two years is void, so the one-year claims deadline in a vendor’s form will not hold.

How should the cap be sized?

Tie the number to the economics of the deal and to insurance you actually carry. Common structures include fees paid in the trailing twelve months, one to three times annual contract value, or a fixed sum negotiated against the counterparty’s realistic downside.

Sizing goes wrong when the cap ignores the tail. A vendor holding sensitive customer data or shipping components into a production line faces losses unrelated to its fee, which is why buyers now negotiate a higher secondary cap for confidentiality breaches, data incidents, and third-party intellectual property indemnity. Confirm the cap does not accidentally swallow the indemnity, and check whether attorney’s fees recoverable under Civil Practice and Remedies Code Section 38.001, amended in 2021 to cover LLCs and partnerships, count against it.

When should a Dallas business law attorney review the clause?

Before signature, and again before you send a notice of breach. A Dallas business law attorney reading the cap against your insurance, your indemnities, and the way the relationship actually operates will catch gaps that a clause-by-clause redline misses.

Texas will hold you to a well-drafted cap and disregard a sloppy one, and the difference comes down to conspicuous placement, precise carve-outs, and a number that reflects real exposure. If a master services agreement, supply contract, or vendor form is sitting on your desk, have the liability terms reviewed while they are still negotiable.