Indemnification Traps: How Buyers Get Stuck With Unlimited Liability

A single poorly drafted indemnity clause cost a mid-market SaaS buyer $2.4M in 2025. The acquirer assumed the target's legacy customer contracts, including a broad-form indemnity that made the buyer liable for pre-closing data breaches they had nothing to do with.

Trap 1: Third-Party Indemnity Without a Cap

"Seller shall indemnify Buyer against any and all third-party claims" — without a dollar cap or a basket (deductible), you have signed up for unlimited liability. Fix: Negotiate a cap tied to purchase price (10–25% for general reps) and a basket of 0.5–1% before indemnity triggers.

Trap 2: Survival Periods Beyond the Statute of Limitations

If the indemnity survival period exceeds the applicable statute, you are extending liability beyond what law requires. Fix: Align survival periods — 3 years for general, 6 years for tax, indefinite for fraud.

Trap 3: "Defend" Without Control Over Defense

The duty to defend is the most expensive component. Without the right to select counsel and control strategy, the indemnitee can run up unlimited legal bills. Fix: Give the indemnitor the right to control defense and settle, subject to indemnitee's consent not unreasonably withheld.

Spot Check

Scan for: (1) dollar cap, (2) survival period, (3) defense control language, (4) first-party vs. third-party scope. Flag any missing element before signing.