“Loss” In Indemnity Clauses: Why The Definition Does The Real Work

Introduction

In most commercial contracts, particularly M&A and shareholders’ agreements, indemnity clauses are subject to significant negotiation. Parties debate triggers, caps, survival periods, baskets, and carveouts. Yet, in practice, one element that often receives less explicit attention ends up doing much of the economic work, the definition of “Loss”.

It is common to see a broadly drafted indemnity provision sitting alongside a definition of “Loss” that quietly narrows what can actually be recovered. Conversely, a carefully considered definition can materially expand the commercial protection beyond what the indemnity wording appears to promise on its face.

From a practical standpoint, the indemnity gives the right to claim; the definition of “Loss” determines what that right is worth.