Indemnity, Liability Caps, and Force Majeure

Indemnification: who defends, and when

Indemnity shifts the cost of third-party claims. The drafting questions that matter are scope (which claims), trigger (on a claim, or only after a judgment), and defense (does the indemnitor control the defense and choose counsel, and must the indemnitee cooperate).

A duty to defend generally kicks in earlier and costs more than a duty to indemnify, which is why counterparties fight over the words. Watch for indemnities covering the other side's own negligence — enforceable in California in commercial contracts only with sufficiently clear language, and not at all where public policy forbids it.

Limitation of liability: the cap and its holes

• The cap amount — often fees paid over the preceding twelve months, which for a new relationship can be near zero.
• Consequential damages waiver — mutual is standard; check whether lost profits are specifically named.
• Carve-outs — indemnity obligations, confidentiality breaches, IP infringement, and gross negligence or willful misconduct commonly sit outside the cap.
• Whether the cap survives a fundamental breach, and whether it applies to amounts owed for services already delivered.
• Insurance requirements, which should line up with the risk being allocated rather than sitting at a default number.

California-specific limits on disclaimers

Civil Code section 1668 prevents contracts from exempting a party from responsibility for their own fraud, willful injury, or violation of law. Attempts to disclaim liability for intentional misconduct will not hold.

Warranty disclaimers under the Commercial Code must be conspicuous and, for merchantability, must mention merchantability. Buried all-caps text at the end of a twenty-page agreement is regularly challenged, and formatting matters more than drafters expect.

Force majeure after the last five years

California courts read force majeure clauses according to their terms. A clause listing 'acts of God, war, and government action' may or may not cover a pandemic, a supply chain failure, or a tariff change, depending on the catch-all language and whether the event was foreseeable at signing.

Modern drafting should name the events you actually worry about — epidemics and public health orders, cyber incidents, utility and grid failures, port closures, and changes in law or tariffs — and then set the mechanics: notice period, mitigation duty, whether performance is suspended or excused, and a termination right if the event runs beyond a stated number of days.

How these clauses interact

They are one system. An uncapped indemnity makes the liability cap decorative. A force majeure clause that suspends performance without addressing payment leaves the money question open. An insurance requirement that does not match the indemnity leaves a gap the parties discover during a claim.

The efficient review reads all three together and asks a single question: if the worst realistic thing happens on this contract, who writes the check, and how big is it? If you cannot answer that from the document, it needs work.