• Why we focus on the phrase “special circumstances” as the basis for “consequential damages”<endsummary>This clause uses the term “consequential damages”, but it doesn’t rely on that label alone. Instead, it addresses the legal principle that is often used to explain when consequential damages are recoverable — a test that comes from Hadley v. Baxendale, a foundational contract case still followed by courts today. Under it, a party is only liable for losses caused by special circumstances if, at the time of contracting, those circumstances were disclosed — and the resulting losses were reasonably foreseeable.Although Hadley didn’t use the phrase “consequential damages,” that term later became a shorthand for this second category of recoverable losses. But over time, lawyers and courts have used it to mean very different things — sometimes referring to indirect or ripple effect losses, and other times to damages that are remote or unforeseeable. That kind of ambiguity leads to confusion and mismatched expectations.  Many other legal scholars and commentators have questioned the consequential damages waiver in various contexts, such as here, here, and here.That’s why this clause expresses the concept directly — and then excludes those damages, even when the legal test would otherwise allow them.Why “consequential damages” is especially confusing in cloud agreementsThe phrase “consequential damages” appears in many contracts by default, often without a shared understanding of what it actually covers. Courts interpret it inconsistently, and even experienced lawyers can’t always agree on what’s in or out. That makes it harder to know what’s really being excluded — and whether the parties actually intended that result.This is especially problematic in cloud services agreements, where data breach fallout can be a major risk. Many of the most costly consequences of a breach — such as:
  • Regulatory fines
  • Notification costs
  • Forensic investigation costs
  — are often treated as consequential damages. Yet when those costs result from a failure to meet contractual obligations, neither party typically intends to exclude them. The label creates more confusion than clarity.Why this clause takes a clearer approachRather than relying on the term “consequential damages” to carry the weight, this clause spells out what’s excluded: damages arising from special circumstances — including risks tied to a Customer’s unique operational setup, their high-value contracts with others, or their specialized regulatory obligations. These are the kinds of losses that might be foreseeable if disclosed, but the clause makes clear that the Cloud Services are a standardized offering — and that disclosure alone doesn’t make those losses recoverable.
• Why we don’t use the phrase “special damages”<endsummary>Most drafters use the term “special damages” as a synonym for consequential damages — but this clause already addresses that concept directly. Including both terms is a common boilerplate habit, but it creates unnecessary ambiguity: if a contract waives both “special” and “consequential” damages, courts may assume they mean different things and try to distinguish them. That’s where confusion creeps in. Some courts interpret “special damages” using tort-based definitions — like specific, measurable losses — which have nothing to do with contract foreseeability. To avoid that kind of interpretive guesswork, this clause leaves the term out entirely and focuses on the well-established principle of special circumstances and foreseeability instead.

• Why we don’t use the phrase “indirect damages”<endsummary>“Indirect damages” is a vague and inconsistently applied term. Some contracts use it as a synonym for consequential damages, while others treat it as a broader catch-all for ripple-effect losses — but few define it clearly. Courts often struggle to distinguish it from other damages categories, and the result is legal uncertainty about what’s actually being excluded. In practice, most parties who want to exclude “indirect damages” are really trying to avoid responsibility for business impact losses — like diminished goodwill, lost market share, or reduced future revenues. These are ripple-effect harms that aren’t tied to a specific failure, but instead reflect broader commercial fallout. Rather than rely on the unclear label “indirect damages,” this clause identifies those risks directly — and excludes them. That gives both parties a clearer understanding of what’s in and what’s out, without relying on an imprecise term.

• Why we don’t use the phrase “incidental damages”<endsummary>While “incidental damages” is defined under the Uniform Commercial Code for goods, the term has no clear or consistent meaning in SaaS or service contracts. Courts have treated it differently, sometimes as a subset of consequential damages, sometimes as a separate category covering mitigation or workaround costs, like engaging a temporary vendor or restoring lost data. That vagueness creates risk. In a data breach, for example, a customer’s reasonable costs to respond—like hiring a breach response team or complying with legal notice obligations—might be labeled “incidental.” A blanket exclusion could be read to bar those entirely, even though both parties would likely expect them to be recoverable. Some providers exclude incidental damages as another method of reducing liability. But in our view, a well-scoped monetary cap already serves that purpose. Including the term risks cutting off recovery for reasonable, foreseeable costs the contract should cover—so we’ve chosen not to use it.

• Why we don’t use the phrase “exemplary damages”<endsummary>Exemplary damages (also called punitive damages) are intended to penalize especially wrongful conduct — like fraud, bad faith, or intentional harm. Many contracts exclude exemplary damages by reflex — as part of a boilerplate list of damages categories. But including that kind of exclusion may suggest the agreement is trying to shield both parties from liability, even if they commit serious misconduct. That’s not the intent here, so we leave exemplary damages out.

• Why we don’t use the phrase “punitive damages”<endsummary>This clause doesn’t use the phrase “punitive damages” (or its synonym, “exemplary damages”). These types of damages are meant to punish especially wrongful conduct — like fraud, bad faith, or intentional harm — and are rarely awarded in commercial contract disputes. Many contracts exclude them reflexively, as part of a boilerplate list of damages categories. But doing so may suggest that the agreement is trying to shield the parties from liability even for serious misconduct. That’s not the intent here, so this clause leaves both terms out.

• Why we use “lost revenues” instead of “lost profits”<endsummary>This clause excludes lost revenues rather than just lost profits to draw a clearer, more defensible boundary around income-based claims. Using the phrase “lost profits” can lead to disputes, not just about how much was lost, but about what counts as profit in the first place. Determining which profits were loss depends on  assumptions about which costs would have applied, what margins would have been, and how to account for hypothetical outcomes. That complexity can make the exclusion harder to enforce. Excluding lost revenues helps avoid those definitional debates. It focuses the exclusion on the total income the customer expected to earn — without having to argue over what portion of that income would have been retained as profit. And because profits are just a portion of revenue, this exclusion still covers them by default. While revenue loss claims can still raise factual questions about the amount, this approach gives both sides a cleaner starting point for what’s in or out of scope.

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