Choose your words carefully: indemnification lead-in language

November 18, 2025  | By Patrick T. McCloskey

When it comes to lead-in language preceding the indemnifiable matters in an acquisition agreement, I’ll borrow the catchphrase from the 80s cop show Hill Street Blues: “let’s be careful out there.”

Aside from price, few topics are negotiated more frequently by private M&A buyers and sellers than indemnification. While the focus typically rests on issues such as baskets, caps, materiality, escrow, exclusive remedy etc., the lead-in language should not be overlooked.

In Legent Group et al. v. Axos Financial, Inc., et al., ¹ the Delaware Court of Chancery recently concluded the phrase “arising out of or resulting from” before the list of indemnifiable matters “invoke[d] Delaware’s common law standard for causation, allowing damages for contractual breach only where the claimant proves a but-for relationship between the harm and the breach.”² Under this standard, the court conveyed “[b]uyers must show that Sellers’ breach was the ‘direct cause without which the [harm] would not have occurred.”³

In Legent Group, the buyer sought indemnification for an alleged breach of a “compliance with law” rep, arguing the seller’s risk policies contravened applicable FINRA rules. The buyer suffered a $15.2 million loss due to a rogue trader’s attempt to overcome a so-called short squeeze. The court held the buyer failed to prove the alleged breach was the direct cause of buyer’s loss because, among other things, the buyer failed to take corrective action after alerts warned the buyer about the trader’s risky activities. Put another way, the court found it was not a deficient risk policy that caused the loss, but the buyer’s failure to act on the alerts triggered by those risk policies.

Perhaps the most significant legal point appeared in a footnote, where the court distinguished the phrases “arising out of or resulting from” and “relating to.”⁴ The latter phrase appeared elsewhere in the subject merger agreement (in the waiver of jury trial provision) but not in the indemnification lead-in. The distinction was supported by case law precedent substantiating the breadth of the words “relating to,” which do not require a “causal connection” and extend to any issues that “touch upon” the subject at issue. While the Legent Group court ultimately ruled there was no breach of the representation at issue, its analysis distinguishing these phrases should send a warning signal on the gravity of the words “relating to” in an indemnification lead-in. Had there been a breach in Legent Group, the inclusion of the words “relating to” would likely have been sufficient to trigger an indemnification obligation because the buyer’s losses certainly “touched upon” the buyer’s risk policies.

Takeaway: M&A buyers and sellers should examine the introductory words preceding the indemnifiable matters carefully. Legent Group makes it clear that, under Delaware law, the words “arising out of or resulting from” present a high bar on causation because the breach must be “the direct cause without which the [loss] would not have occurred.” In the same vein, the court’s footnote reference to the broader words “or relating to” is a warning signal that inclusion of these words will give the buyer an easier path to indemnification. In Florida Chemical, the Delaware Court of Chancery noted “a provision that extends to matters ‘relating to’ an agreement encompasses “any issues that ‘touch on contract rights or contract performance.’”⁵

How often do the words “related to” appear in the indemnification lead-in language? The author examined ten recent acquisition agreements governed by Delaware law with indemnification, all of them public company buyers acquiring private targets. Half of them included the words “related to.” Look out.

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This post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).

1 C.A. No. 2020-0405-KSJM (November 7, 2025).

2 Citing Culver v. Bennett, 588 A.2d 1094, 1097 (Del. 1991) (quoting Chudnofsky v. Edwards, 208 A.2d 516, 518 (Del. 1965) and In re Dura Medic Hldgs., Inc. Consol. Litig., 333 A.3d 227, 255-56 (Del. Ch. 2025) (citing eCommerce Indus., Inc. v. MWA Intel., Inc., 2013 WL 5621678 (Del. Ch. Sept. 30, 2013)).

3  Citing Culver, 588 A.2d at 1097 (quoting Chudnofsky, 208 A.2d at 518).

4 Citing Fla. Chem. Co., LLC v. Flotek Indus., Inc., 262 A.3d 1066, 1083 (Del. Ch. 2021).

5 Citing ASDC Hldgs, LLC v. Richard J. Malouf 2008 All Smiles Grantor Retained Annuity Tr., 2011 WL 4552508, at *5 (Del. Ch. Sept. 14, 2011) (quoting Parfi v. Hldg. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155 (Del. 2022)