Uncapped Indemnity: What It Means in a Contract
An uncapped indemnity is an indemnity obligation with no monetary ceiling, so the indemnifying party is liable for the full value of any loss falling within the indemnity, however large it turns out to be. In construction contracts it rarely announces itself. It usually arrives as silence: the indemnity clause says nothing about a limit, and either there is no limitation of liability clause or the limitation clause expressly carves indemnities out of the cap.
That silence is why uncapped exposure survives contract review so often. A commercial manager reads the indemnity, sees nothing alarming in the wording, and moves on. The absence of a figure is the risk, and absence is harder to spot than a bad number. This article covers what uncapped means in practice, where it sits in the document, the carve-outs that reopen a cap you thought you had, and what to check before signing. It is general information, not legal advice.
What "Uncapped" Actually Means
An indemnity is a promise to make another party whole for a defined category of loss. It is a primary payment obligation rather than a claim for damages, which is why it matters commercially: the indemnified party does not have to prove breach, causation and loss in the ordinary way, and some limits that apply to damages claims, such as remoteness, may not apply in the same way to a sum payable under an indemnity.
Capping an indemnity puts a ceiling on that payment obligation. Leaving it uncapped means the ceiling is whatever the loss happens to be. On a subcontract worth a modest sum, an uncapped indemnity for third party property damage can produce an exposure many multiples of the package value, because the size of the loss is driven by what was damaged rather than by what the subcontractor was paid.
Three practical consequences follow.
The exposure cannot be priced with any confidence. A contractor can estimate the cost of performing the work. It cannot estimate an obligation whose maximum value is unbounded, so the risk either goes unpriced or gets a notional allowance unrelated to the real tail.
The exposure may not be fully insurable. Liability policies carry limits, exclusions, sub-limits and aggregates. An uncapped obligation sits above whatever the policy responds to, and the balance falls on the balance sheet. This is the gap that a cap pegged to the insurance requirement is designed to close, and it is the subject of the companion piece on an indemnity cap pegged to the insurance amount.
The exposure outlives the project. Indemnities commonly survive completion, often for years, so an uncapped indemnity with a long survival period stays on the books long after the retention has been released and the team has moved on.
Where Uncapped Exposure Hides
The indemnity and the cap are almost never in the same place in the document. Finding your actual exposure means reading at least three provisions together, and sometimes four.
The indemnity clause itself. Read it for scope before you read it for limits. Which categories of loss are indemnified: third party bodily injury, third party property damage, claims arising from the work, breach of statutory duty, intellectual property infringement, environmental liability, data or confidentiality breaches. Each category has a different natural loss size, and an uncapped indemnity on a low frequency, high severity category is a different proposition from an uncapped indemnity on routine property damage.
The limitation of liability clause. This is where a general cap would live if there is one. Read it for two things: the figure, and the list of what the cap does not apply to. A general cap expressed as a percentage of the contract price looks like protection until you reach the exceptions, and indemnities are one of the most common exceptions. In unamended FIDIC the limitation provision is Sub-Clause 17.6 in the 1999 books, and the indemnity obligations are treated separately from the general cap. The mechanics are covered in detail in the guide to the FIDIC Sub-Clause 17.6 liability cap.
The insurance clause or schedule. Even where the indemnity is uncapped as a matter of contract, the insurance requirement tells you how much of it is likely to be funded by a policy rather than by the business. The difference is the real retained exposure, and it is the number worth putting in front of a commercial director.
Any order of precedence or incorporation clause. On subcontracts, an incorporation clause can import indemnity obligations from the main contract that are not reproduced in the subcontract text. A subcontractor reading only the subcontract may not see the obligation at all. This is one of the recurring findings in subcontractor agreement review.
A hypothetical example. Say a subcontract contains an indemnity for third party property damage, a general limitation of liability at 20 percent of the subcontract sum, and a line in the limitation clause stating that the cap does not apply to the indemnities. The subcontractor records 20 percent in the risk register. The indemnity is in fact uncapped, and nothing in the indemnity clause said so.
The Carve-Outs That Make a Cap Uncapped Again
Where a cap does exist, the carve-outs decide how much of it survives. These are frequently skimmed, and they are where a nominally capped indemnity becomes uncapped for exactly the claims most likely to generate a large loss.
Death and personal injury caused by negligence. Under English law this is not a negotiating position. Section 2(1) of the Unfair Contract Terms Act 1977 provides that a person cannot use a contract term or notice to exclude or restrict liability for death or personal injury resulting from negligence. For other loss or damage, section 2(2) allows exclusion or restriction of negligence liability only so far as the term satisfies the requirement of reasonableness. Expect this carve-out in any English law contract and treat it as normal rather than aggressive. The Act also contains its own boundaries, including provisions on international supply contracts, so whether it applies at all is a question about the specific contract and its governing law. The full structure is on the UCTA contents page.
Fraud and fraudulent misrepresentation. Effectively non-negotiable.
Wilful misconduct, wilful default and gross negligence. Very common and frequently missed. Where these sit outside the cap, the cap disappears for the conduct behind the most serious incidents. Gross negligence has no settled meaning in English law in the way it does in some civil law systems, so where it appears in a carve-out, how it will be applied is itself uncertain. Check whether the contract defines it.
Breach of confidentiality or data protection obligations. Increasingly carved out, and the loss size here can be substantial and unrelated to the value of the works.
Intellectual property infringement. Often uncapped on the basis that the indemnifying party controls the risk.
The practical point is that the carve-out list, not the cap figure, usually determines the worst realistic outcome. A cap of 100 percent of the contract price with a short carve-out list may expose you to less than a cap of 25 percent with a long one.
How This Gets Negotiated
The positions are predictable, and knowing the other side's rationale makes the negotiation shorter.
The contractor or subcontractor argument is that unbounded exposure cannot be priced or insured, and that accepting it transfers risk to a party with no mechanism to fund it. A subcontractor on a package worth a fraction of its potential liability is being asked to underwrite the project from a position it was not paid to occupy. The ask is a cap that is high enough to be commercially credible and low enough to be insurable.
The owner or upstream argument is that insurance does not cover everything, and that the function of an indemnity is to deal with exactly the situations where it falls short: exclusions, retentions, sub-limits, denied claims, eroded aggregates and insolvent insurers. Capping the indemnity at an insurable figure pushes all of that back upstream. From the owner's side, a cap on the indemnity is a cap on the remedy for the risk the indemnity was written to address.
Where this usually settles is on scope rather than on the existence of a cap. The common landing zones are a cap on the whole indemnity with a defined carve-out list, a cap on some categories with others left uncapped, or a cap pegged to the required insurance. Each of those is a different risk allocation and they are not interchangeable.
Two tactical notes. Mutuality is often easier to win than quantum, so an indemnity that runs both ways on the same terms is a reasonable ask even where a reduction in the figure is resisted. And a survival period is often easier to negotiate than a cap, because limiting how long the obligation lasts reduces the contingent liability even if the ceiling stays open.
What to Check in the Document
Work through these in order. The sequence matters because scope determines whether the cap question is material.
One. Is the indemnity capped at all, and where does the cap live? Read the limitation of liability clause and the indemnity clause together. If the limitation clause has an exceptions list, read it before you record the cap figure anywhere.
Two. What categories of loss does the indemnity cover? List them. An uncapped indemnity on a narrow category is a smaller problem than a capped indemnity on a broad one.
Three. What are the carve-outs, and is gross negligence among them? Check whether any carved out term is defined in the contract. Undefined terms in a carve-out create uncertainty on top of exposure.
Four. Does the indemnity extend to indirect or consequential loss? Many contracts exclude consequential loss generally and then indemnify in terms wide enough to capture it. If both provisions exist, work out which governs.
Five. How does the indemnity interact with the insurance requirement? Compare the categories indemnified against the cover required. The uninsured residue is the retained exposure.
Six. How long does the indemnity survive, and does the insurance obligation survive to match? An indemnity that outlives the insurance requirement leaves the obligation standing with nothing behind it.
Seven. On a subcontract, what is imported by the incorporation clause? Obligations that are not in the subcontract text may still bind you. Check the main contract indemnity and the flow-down wording.
Eight. Does the exposure belong in the risk register with a number against it? If it cannot be quantified, record it as unquantified rather than omitting it. An unbounded obligation recorded as unbounded is a decision; one left out of the register is an accident. The wider framework sits in the guide to construction contract risk analysis.
Frequently Asked Questions
Is an uncapped indemnity enforceable?
Generally yes, subject to the governing law and any statutory controls that apply. Parties of equal bargaining power are usually free to agree one, and commercial contracts routinely contain them. Statutory controls tend to bite on clauses that exclude or restrict liability rather than on clauses creating a payment obligation. Whether a particular indemnity is enforceable in a particular jurisdiction is a question for qualified legal advice.
What is the difference between an uncapped indemnity and uncapped liability?
Uncapped liability usually describes the general position under the contract: no ceiling on damages for breach. An uncapped indemnity is narrower and more specific: no ceiling on the sums payable under a defined indemnity obligation. A contract can have a general liability cap and still have uncapped indemnities, and this combination is common. It arises wherever the limitation of liability clause carves indemnities out of the cap, which is why the exceptions list matters as much as the cap figure.
Does a liability cap automatically limit an indemnity?
No. It depends entirely on how the limitation clause is drafted. Some limitation clauses apply to all liability under the contract, however arising, which would capture indemnity payments. Many expressly exclude indemnities from the cap. Some are silent or ambiguous, which is the worst case because the point then turns on construction of the contract. Never assume the general cap reaches the indemnity without reading the limitation clause and its exceptions.
What is a reasonable cap on a construction indemnity?
There is no standard figure, and it depends on the category of loss, the value of the package, the insurance available and the risk profile of the project. In practice the negotiation often focuses on pegging the cap to the insurance the indemnifying party is required to carry, because that figure is verifiable from a certificate of insurance and is aligned with cover that was priced into the works. That structure has its own drafting traps, covered in the companion article on indemnity caps pegged to the insurance amount.
Do FIDIC contracts contain uncapped indemnities?
The unamended FIDIC books contain a limitation of liability provision and separate indemnity obligations, and the relationship between them is defined in the standard text. In the 1999 editions the limitation provision is Sub-Clause 17.6. Publisher details are on the FIDIC pages for the 1999 Red Book and the 2017 Red Book. The more important point is that most FIDIC contracts in circulation are amended. Particular Conditions frequently rewrite both provisions, so the standard form tells you where to start reading, not what your contract says.
How Lexilio Catches This
Uncapped indemnity exposure is a cross-reference problem rather than a reading problem: the obligation, the cap, the carve-out list and the insurance requirement sit in different parts of a long document, and the risk is created by what is missing from one of them. Lexilio's contract assistant analyses indemnity and limitation of liability provisions together with the insurance requirements in the same document and surfaces the interaction with clause references, and Projects holds the position across a contract suite so the same check does not have to be repeated by hand on every package. Every report Lexilio exports records who reviewed it and when, which is set out on the human review section of the security page.
Lexilio is the construction commercial intelligence platform for FIDIC, NEC, JCT, and AIA contracts.
