Series 79 practice questionhardEnvironmental due diligence – indemnity limitations
A seller agrees to an environmental indemnity capped at $5 million for five years. After the third year, a $10 million legacy contamination is discovered. What is the buyer’s typical recourse?
- AClaim up to $5 million from the seller✓ Correct answer
- BClaim the full $10 million from the seller
- CCancel the transaction retroactively
- DRequire the seller to buy environmental insurance
Explanation
Why A — Claim up to $5 million from the seller
Indemnities are usually capped; the buyer can only recover up to the agreed $5 million. Cancellations are not retroactive, and requiring insurance post-closing is not a typical remedy.
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