--- title: "Do the Applicant's client contracts exclude consequential damages in the Applicant's favor?" url: https://insuranceposture.com/questions/services-and-contracts/applicant-s-client-contracts-exclude-consequential-damages-applicant-s category: "Services and contracts" canonical_key: q_pro_009 evidence_state: attested updated: 2026-08-24 --- # Do the Applicant's client contracts exclude consequential damages in the Applicant's favor? URL: https://insuranceposture.com/questions/services-and-contracts/applicant-s-client-contracts-exclude-consequential-damages-applicant-s Section: Services and contracts Evidence state: Attested, not tenant-verifiable Direct damages are what your service cost. Consequential damages are what the client lost because it failed, and the second number is much larger. ## What the carrier is actually asking The carrier is asking whether your contracts exclude liability for indirect and consequential loss: lost profits, lost business, lost data value, and reputational harm suffered by the client. ## Why it is underwritten If your platform is unavailable for two days, the client's lost trading revenue can exceed your annual fee many times over. The consequential damages exclusion is what keeps liability proportionate to the contract value. Without it, exposure is unbounded regardless of the cap. ## Where the answer lives in Microsoft 365, Entra ID, and Azure This lives in the contract estate alongside the liability cap, and the two work together. | Platform | Where the setting lives | What has to be true | | --- | --- | --- | | Templates | Consequential and indirect damages exclusion | A clear exclusion naming the categories excluded rather than relying on a general phrase. Attested | | Contract estate | What major clients actually agreed | Executed positions, since this clause is negotiated frequently | | Carve-outs | Exceptions to the exclusion | Data breach carve-outs, which reopen the largest category of consequential loss | | Definitions | How lost profits and lost data are characterised | Explicit naming, since jurisdictions differ on whether lost profits are direct or indirect | | Interaction | How the exclusion works with the liability cap | Both present and consistent, since they address different dimensions of the same exposure | **Name the categories explicitly** Courts in several jurisdictions have treated lost profits as direct rather than consequential damages, which means a general exclusion of consequential loss may not exclude them. Naming lost profits, lost revenue, and lost data explicitly removes the argument. ## What a defensible yes requires - Standard terms exclude indirect and consequential loss. - The excluded categories are named explicitly rather than referenced generally. - Executed contracts have been reviewed for what was agreed. - Carve-outs are identified and quantified. - The exclusion and the cap work together and are consistent. ## How this answer goes wrong The exclusion is present in general terms and does not name lost profits, so the largest head of loss remains arguable. Combined with a data breach carve-out from the cap, the contractual protection is considerably thinner than it appears. ## If this answer turns out to be wrong Technology E&O questions describe what you promised your own clients, and the policy language decides how strictly your description of that is held. Whether anything follows from an inaccuracy depends on materiality, on the policy wording, and on the law of the governing state: [whether an answer is a warranty or a representation](https://insuranceposture.com/glossary/warranty). The other consequence terms are collected in the [glossary](https://insuranceposture.com/glossary). ## Frequently asked ### Do clients accept this clause? It is standard in technology contracts and it is negotiated frequently. Mutual exclusions are a common landing point. ### Are lost profits consequential? It depends on the jurisdiction and the drafting, which is exactly why naming them explicitly is worth the extra line. ### Does this matter if we have a cap? Yes. They address different things: the cap limits the total, the exclusion removes categories. Carve-outs to either can undo both. ### What about client business interruption? That is the classic consequential loss and the one most likely to be claimed. It is why the exclusion matters more for hosted services than for licensed software. ## Related questions - [Do the Applicant's client contracts contain limitation of liability clauses benefiting the Applicant?](https://insuranceposture.com/questions/services-and-contracts/applicant-s-client-contracts-contain-limitation-liability-clauses-benefiting) - [Does the Applicant use written contracts or agreements with its customers for the provision of services or products?](https://insuranceposture.com/questions/services-and-contracts/applicant-written-contracts-agreements-customers-provision-services-products) - [Do the Applicant's client contracts address guarantees or warranties?](https://insuranceposture.com/questions/services-and-contracts/applicant-s-client-contracts-address-guarantees-warranties) - [Does the Applicant provide data processing, storage, or hosting services to third parties?](https://insuranceposture.com/questions/business-profile/applicant-provide-data-processing-storage-hosting-services-third-parties) --- Insurance Posture by SecValley. https://insuranceposture.com The question library is written in our own wording to reflect the control topics that recur across US cyber application and ransomware supplemental forms. 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