How long should an indemnification agreement last?

Indemnification obligations survive closing – meaning the obligations remain in effect even after you close the deal and collect the purchase price. The survival period for the representations and warranties made in the purchase agreement usually ranges from six months to two years.

What is the term length of an indemnity contract?

The period of indemnity is the length of time the insurance company is obligated to make payments to cover the losses insured under the policy. Typically, an indemnity period will have a time limit stated within the policy, such as 12, 24, or 36 months.

Can you limit indemnity?

There is no general rule on whether a clause limiting liability applies to indemnities, it comes down to interpretation each and every time. An example of this is when limitations on ‘all claims arising under the contract’ could affect an indemnity claim since an indemnity is a contractual obligation to pay money.

Do indemnity clauses hold up in court?

Indemnification provisions are generally enforceable. There are certain exceptions however. Indemnifications that require a party to indemnify another party for any claim irrespective of fault (‘broad form’ or ‘no fault’ indemnities) generally have been found to violate public policy.

Who should pay for an indemnity policy?

Sellers usually pay for the policy to salvage the sale. But if the seller refuses to pay, you’ll have to negotiate over who covers the cost.

Can I get my own indemnity insurance?

Yes. You may have bought the indemnity insurance but it is tied to the property. This means you can hand it over to new owners who will continue to be protected by it. However, if the property value increases then you may have an additional premium to increase the cover.

Are there limits to the time limit for indemnity?

These indemnity obligations are generally subject to various limitations, including with respect to the time limit during which the indemnity is applicable, the amount of damages required to be suffered before the indemnity obligation is triggered (referred to as indemnity “baskets”), and caps on the indemnitor’s indemnity liability.

What are the terms of the indemnity agreement?

The Indemnifier will not be liable for any amounts paid in settlement of any claim or action where written consent of the Indemnifier was not first obtained. The Indemnifier will not unreasonably withhold consent to any settlement. The Indemnifier will not settle any claim or action without first obtaining the written consent of the Indemnitee.

What are the indemnification provisions in an M & A?

In addition to representations and warranties, M&A purchase agreements generally include indemnification provisions, pursuant to which any given party (“indemnitor”) agrees to defend, hold harmless, and indemnify the other party or parties (“indemnitees”) from specified claims or damages.

What are the exceptions to the indemnification agreement?

The Indemnitee agrees to repay to the Indemnifier any advance payments on Expenses where a determination is ultimately made that the Indemnitee is not entitled to indemnification for reasons described under the Indemnification and the Exceptions to Indemnification sections.

When does the limitation period for an indemnity start?

It is critical to understand that the limitation period in relation to an indemnity clause starts from the date on which the indemnifier refuses to honour the indemnity. The indemnified party would then have a further 6 years from that date within which to bring legal proceedings to enforce the indemnity.

When to include an indemnity clause in a contract?

limit the time during which claims can be brought under the indemnity clause. For example, within 6 years from the completion of work consider including indemnities for breach of contract and negligence in addition to the existing common law rights.

Is there a survival period for special indemnification claims?

Parties heavily negotiate the survival period for similar “special” indemnification claims. In addition to limiting the scope of its indemnification obligations and the time period during which indemnification claims may be brought, the sellers will want to cap their damages for such claims.