Indemnification: Caps, Baskets & Survival in M&A
Indemnification is the buyer’s main remedy if the business is not what was promised — and the cap, basket, and survival decide how much it is worth.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Indemnification is how the parties allocate the cost of breaches discovered after closing. The package is built from survival periods, a cap, a basket (or deductible), a de minimis threshold, and sometimes an exclusive-remedy clause and representations-and-warranties insurance.
Small changes to these terms move a lot of money, so review them together rather than one at a time.
Topics to check
Survival sets how long after closing a claim can be brought (often 12–24 months for general reps, longer for fundamental and tax reps). The cap limits total recovery; the basket sets a minimum aggregate before any recovery (a "tipping" basket pays from dollar one once crossed, a "deductible" pays only the excess); the de minimis screens out tiny claims.
A low cap with a high deductible can leave a buyer effectively self-insuring most problems — evaluate the whole structure together.
Indemnity (Cornell LII Wex)An exclusive-remedy clause channels all post-closing claims through indemnification (and the cap). Buyers should preserve a carve-out for fraud and for the indemnity escrow. "Sandbagging" addresses whether the buyer can still claim for a breach it knew about before closing — pro-sandbagging favors the buyer; anti-sandbagging favors the seller.
An exclusive-remedy clause that also bars fraud claims is a serious red flag for a buyer.
RWI is a policy that backstops breaches of the seller’s reps, increasingly common in mid-market deals. It can reduce the seller’s indemnity exposure and the escrow, but it has a retention (deductible), exclusions (often known issues, certain taxes, and specific risks), and its own claims process.
If RWI is used, confirm how it interacts with the contractual indemnity, the retention, and the escrow.
Key takeaways
- Review survival, cap, basket, and de minimis together — not one at a time.
- Know whether the basket is a "tipping" basket or a "deductible."
- Preserve fraud (and escrow) carve-outs from any exclusive-remedy clause.
- Sandbagging language decides if the buyer can claim for known issues.
- If RWI is used, confirm retention, exclusions, and how it meshes with the indemnity.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Sandbagging enforceability and exclusive-remedy limits vary by state.
- RWI terms and their interaction with the indemnity should be confirmed with counsel and the broker.
Frequently asked questions
What is the difference between a tipping basket and a deductible?
With a tipping basket, once total claims exceed the threshold the buyer recovers from the first dollar; with a deductible, the buyer recovers only the amount above the threshold. A deductible is more seller-favorable.
What does "exclusive remedy" mean in a purchase agreement?
It means indemnification (subject to the cap and other limits) is the buyer’s only recourse for breaches, instead of separate lawsuits for damages. Buyers should preserve a carve-out for fraud and for recovering against the escrow.
What is sandbagging?
Whether a buyer can recover for a breach of a representation that it knew about before closing. A pro-sandbagging clause allows it (buyer-favorable); an anti-sandbagging clause bars it (seller-favorable).