What Is an Exemption Clause?

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  • Written By: Karize Uy
  • Edited By: Lauren Fritsky
  • Last Modified Date: 05 February 2020
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An exemption clause is a part of a contract that specifies certain conditions from which a party is exempted. These conditions are usually liabilities and legal responsibilities in specific situations. Generally, an exemption clause works more for the benefit of the party who is drawing up the contract in order to protect that party from giving high-costing financial assistance or from being sued. Both parties, however, can agree on a compromise if the other party does not agree on the drafted clause.

There are two general kinds of an exemption clause, the first of which is the “limitation clause.” This clause aims to put a limitation on the party’s liability when situations of loss and damages arise. For example, in a case of physical injury, the party will only pay up to 30% of the incurred costs of the injured person’s treatment. Sometimes, a limitation clause would even specify the amount of liability the party will accept, such as in a specific amount of money, or in non-financial terms.


The other kind of exemption clause is the “exclusion clause,” wherein the party wants to be totally excluded from any liability. If this clause is agreed upon, the party will then avoid any accountability in any damaging or injurious situations. Some contracts would also include this clause in case either of the involved parties would violate the stipulations in the contract. If, for example, one party violates a non-disclosure clause in the contract, the other party is automatically excluded from any negative results from disclosing the information.

An exemption clause may often be used in legal-related situations, but it can also be used in costumer-related circumstances, such as in warranties and guarantees. The clause, however, is not forthrightly stated as such, so costumers should be cautious. For example, a limitation clause would be in the form of a statement such as “the company will not be liable for any damages after six months of purchase.”

In many countries, the court usually controls a company’s authority to include an exemption clause, especially so if the company can be involved in situations of injuries, accidents, or even death. Car companies, for example, cannot rely on the said clause if a factory defect caused a serious injury of a passenger or a driver. Hospitals cannot have a limited or excluded liability if an employee’s negligence has resulted in the death of a patient. The court also has the power to rule out the exemption clause if the clause is thought of as unfair or unreasonable.


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