Indemnification Cap

Indemnification provisions in M&A agreements define who pays for what when something goes wrong post-closing. The cap limits the seller's aggregate indemnification exposure — most commonly set at 10-25% of deal value for general representations, though certain representations (title, authority, taxes, fraud) often have higher or uncapped exposure.

The indemnification structure has three key parameters: the cap (maximum liability), the basket or deductible (minimum threshold before indemnification kicks in), and the survival period (how long after closing a claim can be made). The interplay of these three parameters determines the effective risk allocation between buyer and seller.

Where R&W insurance is used, the insurer's policy replaces direct seller indemnification, typically with a cap equal to 10-30% of deal value. Document intelligence tools that extract and compare indemnification structures across acquisition agreements enable deal teams to assess their risk exposure relative to market norms.