Limitation of Liability Clause Data Processing Agreement

As businesses increasingly rely on technology to manage and store data, it`s essential to have a clear agreement in place to ensure both parties understand their legal obligations. One of the most critical clauses in a data processing agreement is the limitation of liability clause.

A limitation of liability clause is a provision that limits the amount of damages a party can recover for a breach of contract. In a data processing agreement, this clause is crucial as it outlines the extent of liability that the data processor has in case of data breaches, leaks, or other security incidents.

However, there are some limitations regarding these clauses that businesses should be aware of. Below are a few considerations to keep in mind when drafting or reviewing a data processing agreement`s limitation of liability clause.

1. Governing law considerations

The governing law of a data processing agreement could impact the enforceability of the limitation of liability clause. Some jurisdictions may not enforce clauses that limit liability for gross negligence or intentional acts. For example, the European Union`s General Data Protection Regulation (GDPR) explicitly states that data processors cannot limit their liability for data breaches resulting from intentional or gross negligence actions.

2. Public policy considerations

Courts may also consider public policy concerns when determining the enforceability of a limitation of liability clause. If a data processor`s action resulted in a significant public harm and a limitation of liability clause would limit the available damages significantly, a court may strike down the clause as contrary to public policy.

3. Industry standards

Courts may also consider the relevant industry`s standard practice when evaluating the reasonableness of the limitation of liability clause. If the industry standard includes more extensive liability protections for data processors, a court may find a clause that limits liability to be unreasonable.

4. The extent of the limitation

The extent of the limitation of liability clause also matters. A limitation of liability clause that completely exonerates the data processor for any liability may not be enforceable in many situations. A more reasonable limitation clause could include a cap on damages or a requirement that the data processor carries insurance to cover potential damages.

In summary, a limitation of liability clause is an essential provision of any data processing agreement. However, businesses must carefully consider the applicable jurisdiction`s governing law, public policy concerns, relevant industry standards, and the extent of liability limitation when drafting or reviewing such clauses. With proper consideration of these factors, a business can create a data processing agreement that protects its interests while also ensuring compliance with data protection and privacy laws.