Limitation of Liability vs Indemnification

The short answer

A limitation of liability clause sets a ceiling on damages between you and the vendor. An indemnification clause is a promise to defend and pay for claims brought by someone else, such as a lawsuit from a third party.

Read them together. If the indemnity sits under the cap, it is only as large as the cap. If it is carved out of the cap, it can be much larger.

Limitation of liability

• What it is: a clause that limits how much each side can be made to pay the other, for example to the fees paid over a set period.
• Who it binds: both you and the vendor, unless the clause says otherwise.
• Typical content: a general cap, a list of excluded damage types (see consequential damages exclusion), a higher cap for certain claims (a super cap), and claims that sit outside any cap.

The Atlassian Customer Agreement is one example. Its general cap (section 14.2) is the amounts paid in "the twelve (12) months preceding the first event out of which the liability arose." For certain claims about unauthorized disclosure of Customer Data, it sets a higher cap: the lesser of two times those amounts and US$5,000,000 (section 14.4).

Indemnification

• What it is: a promise by one side to defend the other against certain third-party claims and pay the resulting costs, settlements or damages.
• Who it binds: the side giving the indemnity. A vendor may give an IP indemnity, and customers may be asked to indemnify the vendor for their own data or misuse.
• Typical content: what claims are covered, what is excluded, how you must notify the other side, who controls the defense, and whether it is your only remedy.

In the same Atlassian agreement, section 15.1 says Atlassian will "defend Customer from and against any third-party claim" alleging the products infringe someone's IP. Section 15.5 lists exclusions, such as claims arising from your modifications or your own data.

Which one applies to you

Both apply at once. Use these steps to see how they interact.

1. Find the general cap and work out the real number. Twelve months of fees on a small plan may be a few thousand dollars.
2. Check whether the vendor's indemnity is excluded from the cap. In the Atlassian agreement (section 14.3), amounts Atlassian must pay third parties under its section 15 indemnity are outside the general cap.
3. Check whether any indemnity you give is also uncapped. A customer indemnity for "your content" or "your use" can expose you to more than your fees.
4. Look for the "exclusive remedy" wording. Atlassian section 15.6 makes the IP indemnity your "exclusive remedy" for third-party IP claims.
5. Check data breach coverage. A breach may fall under a super cap, the general cap, or an indemnity, and the answer changes the amount by a lot.

Example

Venpo flagged a change where Ramp says you own its AI output and carry the risk if it infringes. Ramp's October 2026 terms say you own what its AI features generate for you, and its IP indemnity no longer covers infringement claims arising from that output. That is an indemnity question: if a third party claims the AI output copies its work, the terms decide who pays, and the cap decides how much the vendor could owe you at most.

For example, imagine you pay a vendor $6,000 a year. Its cap is 12 months of fees, and its IP indemnity is carved out of the cap. If someone sues you because the vendor's software infringes a patent, the indemnity can cover the full defense. If you sue the vendor for an outage, you can recover at most $6,000.

How Venpo helps

Liability caps and indemnities can change when a vendor updates its online terms. Venpo monitors your vendors' terms of service and other legal pages, and emails a plain-English alert when wording on caps, indemnities or who carries a risk changes, with a change history per vendor.