An Interesting Quirk in Indemnification for Third Party Claims

The January/February 2025 Deal Lawyers has a great article on Third Party Indemnification.  It raises the point that if a third party brings a claim against the Buyer after closing that, if true, would constitute a breach of the Representations and Warranties in the definitive agreement, the Buyer may not be able to recover the costs incurred in defending the claim unless (and until) the Buyer loses the case.  That is because the Buyer will typically take the position in defending the matter that the claim is not true, and therefore there was no breach.

Buyers should take care in drafting indemnification provisions for third party claims  to either expressly include coverage for defense of third party claims alleging a breach, or at least providing for advancement of defense costs for such matters.