How it works in a data room
Diligence surfaces a problem, for example an environmental issue, an open tax audit or a product liability claim, documented in files in the room. Because the buyer now knows about it, ordinary warranties would not cover it once disclosed. Instead, the parties write a specific indemnity into the purchase agreement, describing the matter, any cap and the time limit. The supporting documents and expert reports are kept in the room and the archive, since they define what the indemnity covers.
Why it matters in a deal
Specific indemnities let a deal proceed despite a known risk without forcing an immediate price cut that might overshoot or undershoot the eventual cost. They are usually excluded from warranty and indemnity insurance, which does not cover known issues, so the seller often backs them with escrow or a holdback. The precision of the wording, and the evidence in the room, decide how claims play out later.
Example
Diligence on a logistics company reveals an employee class action over unpaid overtime. Rather than reduce the price by a guessed amount, the parties agree a specific indemnity for losses from the claim, capped at a set figure and secured by part of the price placed in escrow. The claim settles two years later and the escrow covers it. The restructuring and bankruptcy guide covers risk allocation in difficult deals.