Uncapped Indemnity: The B2B Contract Risk You Are Probably Ignoring

In B2B negotiations, vendors are often eager to close deals quickly, leading them to agree to broad, uncapped indemnity clauses. In legal terms, this means you assume unlimited liability for any losses, claims, or damages arising from performance failures, security breaches, or intellectual property infringement claims.

"An uncapped indemnity clause can easily bankrupt a growing startup. It bypasses standard legal caps on liability, leaving you fully exposed."

Why Uncapped Indemnity is Dangerous

Under Indian contract law, parties can limit their liability using standard liability caps (e.g., capping damages at the fee paid over the preceding 12 months). However, indemnity is treated as a separate obligation. If you agree to indemnify a client for intellectual property infringement or data breaches "without limitation," you are essentially writing a blank check to their legal team.

Drafting Safe Fallbacks

Using ContractIQ, you can automatically scan incoming MSAs and flag uncapped indemnity structures. We recommend negotiating the following safe fallback positions:

• Liability Caps: Expressly state that all indemnity obligations are subject to the global liability cap (e.g., 1x or 2x the annual contract value).
• Carve-outs: Limit indemnity to direct, proven losses, excluding indirect, consequential, or punitive damages.
• Conduct of Claims: Ensure you have the right to assume control of the defense of any third-party claim, preventing the client from settling without your consent.