Indemnification and Limitation of Liability
How indemnification and limitation of liability interact, where caps apply, and where a contract can accidentally leave one side uncapped.
- Whether indemnity is inside or outside the liability cap
- Which claims are uncapped or subject to a higher cap
- Whether third-party claims and direct claims are treated differently
- How survival periods affect indemnity recovery
If this clause already feels aggressive in isolation, upload the full contract and see how it combines with payment terms, liabilities, and exit rights.
Analyze My ContractEach party's indemnification obligations under Section [X] shall not be subject to the limitation of liability cap set forth in this Agreement. The exclusions and limitations in this Section shall apply only to the extent permitted by applicable law and shall not limit a party's obligation to indemnify the other against third-party claims as expressly provided herein.
What this clause actually does
Indemnification and limitation of liability clauses must be read together. Indemnification says who must cover certain losses or claims. Limitation of liability says how much a party can recover. If the contract does not explain whether indemnity sits inside or outside the cap, the parties may discover the answer only after a dispute starts.
Why people get burned by this clause
This interaction is where expensive surprises hide. A buyer may think the seller's indemnity is uncapped, while the seller thinks the global liability cap applies. A vendor may promise broad indemnity, then rely on a small fees-paid cap to limit the promise.
What should make you slow down
- The indemnity section and liability cap section do not cross-reference each other
- The cap is so low that indemnity becomes mostly symbolic
- Third-party claims are handled differently from direct claims but the distinction is unclear
- Carve-outs are scattered across multiple sections
- The contract says indemnity survives but caps the actual recovery elsewhere
Where you usually see it
- MSAs
- SaaS terms
- Vendor agreements
- Asset purchase agreements
- Transition services and post-close support agreements
What the platform checks in the live contract
- Whether indemnity is inside or outside the liability cap
- Which claims are uncapped or subject to a higher cap
- Whether third-party claims and direct claims are treated differently
- How survival periods affect indemnity recovery
- Whether excluded damages language undercuts the indemnity
What stronger language usually looks like
- The cap section states exactly which indemnities are capped, uncapped, or separately capped
- Third-party claim procedures are clear
- Excluded damages do not accidentally erase indemnity protection
- Survival periods, baskets, caps, and carve-outs fit together
- The commercial risk matches the dollar exposure
Definitions worth opening next
Clause pages that share the risk pattern
Articles that go deeper
Common questions about this clause
Only if the contract says so or a court reads the sections that way. Better drafting states directly whether indemnity obligations are capped, uncapped, or subject to a separate higher cap.
They are often drafted by different templates. One section promises broad protection, while another section limits all liability. Unless the contract reconciles them, the parties may disagree over which section controls.
Start with the carve-outs. Look for whether fraud, confidentiality, IP infringement, data misuse, taxes, employee claims, and third-party claims are inside or outside the cap. Then check survival periods and claim procedures.
Indemnification and limitation of liability are a paired risk system. Reading either one alone is incomplete. The safest contracts state which claims are capped, which are uncapped, and which get a special cap so the risk allocation is visible before a dispute.
See how this clause behaves in the real contract.
The clause library gives you judgment. The full review shows how this clause combines with the rest of the agreement, then quotes the exact language, scores the risk, and explains what to push on next.