TLDR:
Indemnification is a contractual obligation by one party to compensate another for certain losses or damages, commonly used in business agreements to allocate risk between parties.
Indemnification Limits and Exclusions
Indemnification obligations have both scope and limits. Standard M&A purchase agreements typically include representations and warranties (R&W) indemnification requiring the seller to compensate the buyer for losses arising from breaches of the seller’s representations — such as inaccuracies about the company’s financial statements, intellectual property ownership, or compliance history. However, indemnification provisions are typically subject to survival periods (limiting when claims can be made), deductibles (the buyer bears the first X dollars of losses), caps (total liability is limited to a percentage of deal value), and materiality thresholds.