An Indemnity Moves Cost to You
You capped your liability. Did you cap all of it?
The idea
An indemnity is a promise to cover someone else's losses, and it can sit outside the liability cap.
In the real world
Agreeing to cover a customer's costs if a third party claims your work infringes their rights.
Going deeper
An indemnity is a promise to cover another party's losses, and it operates separately from ordinary contractual liability. Crucially, it may sit outside the liability cap.
That combination can make a carefully negotiated cap largely cosmetic: liability under the contract is limited to fees, while an uncapped indemnity for third-party claims leaves the largest exposure untouched. The two clauses have to be read together, and the question is whether the indemnity is expressly brought within the cap or expressly excluded from it.
Where it stops applying
Indemnities are standard and often reasonable, particularly for intellectual property infringement. The issue is scope and whether it is capped, not their existence.
Why it matters
It can quietly reintroduce the unlimited exposure a liability cap appeared to remove.
Try this today
Check whether the indemnities in your agreements are inside or outside the cap.
Test yourself
A supplier caps liability at fees paid, and separately gives an uncapped indemnity for third-party claims. How much protection does the cap provide?
Show the answer
Less than it appears. The cap governs claims under the contract while the indemnity is a separate promise that may sit outside it, so the largest exposure can be the one the cap does not touch. Both clauses have to be read together.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.