Caps are typically expressed as a percentage of purchase price, commonly ten to twenty percent for general representations. Fundamental representations and fraud claims are frequently uncapped or capped at the full price.
The cap interacts with escrow and insurance.
Alternative Names:
Indemnity Cap|Liability Cap
Why it Matters?
What falls inside and outside the cap is negotiated as carefully as its amount, since fundamental representations, tax indemnities, and specified known risks are commonly carved out and carry separate or unlimited exposure. Representation and warranty insurance has changed the structure, permitting lower caps because the policy rather than the seller absorbs the risk. That shift also removes the seller as the practical claim target.
Frequently Confused with
Related terms
Frequently asked questions
What is typically outside the cap?
How has insurance changed the structure?
