"Uncapped" is one of the most common flags a contract review turns up, and one of the most commonly misread. An uncapped indemnification clause does not mean unlimited liability in the sense most people assume — it means the contract’s general limitation-of-liability cap does not apply to that specific obligation. The exposure is still real. It is just not bounded by the number everyone already negotiated elsewhere in the agreement.
Uncapped Is Not the Same as Unlimited
Even without a cap, an indemnification obligation is still limited to actual, documented losses — a court is not going to award damages that were never actually incurred. What "uncapped" removes is the ceiling: the general liability cap that would otherwise apply (often expressed as a multiple of fees paid, or fees paid in the preceding 12 months) simply does not reach this particular clause. In most U.S. jurisdictions, courts treat indemnification for third-party claims as a distinct performance obligation from the general limitation-of-liability clause — which is exactly why the two need to be read together, not assumed to move as one.
Where Uncapped Indemnities Show Up
- Intellectual property infringement — by market convention, a vendor’s indemnity for infringing a third party’s IP is frequently left uncapped, on the theory that infringement risk is within the vendor’s control and the customer shouldn’t bear it.
- Confidentiality and data breach — increasingly common to see uncapped indemnification for a breach of confidentiality obligations or a data security incident, given the potential scale of exposure.
- Gross negligence and willful misconduct — many limitation-of-liability clauses carve these out entirely, on the reasoning that a cap shouldn’t protect deliberate or reckless conduct.
- Breach of fundamental terms — payment obligations, exclusivity, or other terms considered core to the deal are sometimes carved out of the general cap as well.
What to Do When You Find One
The question isn’t whether an uncapped clause should be struck entirely — for IP infringement in particular, it’s market-standard and often a reasonable ask. The question is whether it was a deliberate business decision or something nobody caught. A few checks worth running on any uncapped clause:
- Confirm which specific obligations are carved out of the general cap — read the limitation-of-liability clause’s exceptions list, not just the indemnification clause in isolation.
- Consider a "cap on the cap" as a fallback position — an indemnification-specific ceiling (e.g., a multiple of total fees paid) that is higher than the general cap but still bounded, rather than leaving it fully open-ended.
- Check whether the carve-out is mutual — an uncapped indemnity that only runs one direction is a different negotiation than one that applies to both parties equally.
- Weigh it against insurance — whether the counterparty carries cyber or E&O coverage sized to actually respond to an uncapped exposure changes how much real risk the clause represents.
This is precisely the kind of flag CDL Intelligence’s AI-assisted redlining is built to catch automatically — an uncapped indemnity gets surfaced with a suggested fee-multiple cap and a rationale, benchmarked against how the same clause type was resolved elsewhere in your own contract portfolio, rather than requiring a reviewer to manually cross-reference the limitation-of-liability section against every indemnification clause in the document.
This article explains a general contract concept and is not legal advice. Whether a specific uncapped clause is acceptable depends on the deal, the counterparty, and your own risk tolerance — consult a qualified professional before signing.