The business has been sold, the equipment has changed hands and the seller believes the purchase agreement put old liabilities behind it. Years later a customer sues over something that happened before closing. Someone opens the agreement, finds an indemnity provision and discovers that the real disagreement is over what that provision actually promised.
An indemnity can shift financial responsibility between contracting parties. It doesn't automatically erase the original liability to a third party, and it doesn't make the responsible party's insurer a guarantor of the bargain. A person injured by negligent work may still pursue the legally responsible defendant even where the sale agreement allocates that cost between seller and purchaser. The indemnity is a separate question about who ultimately bears the specified risk.
Wording matters more than the reassuring label
Commercial agreements can contain indemnities for identified tax liabilities, contractual breaches, environmental obligations or third party claims. They can also include thresholds, caps, time limits, defence controls and notice requirements. A broad description in a negotiation email doesn't override the words actually agreed. If the obligation is tied to a schedule of liabilities or to events occurring after closing, the parties need to read those limits before assuming that earlier negligence has been transferred.
In Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53, the Supreme Court described commercial interpretation as an assessment of the words used in the agreement, read within their objective commercial context. That doesn't authorize a court to create a more generous indemnity because one party privately thought the clause was a complete release. The relevant context can explain language, but it doesn't displace it.
Canadian lawyers also encounter the older Canada Steamship interpretive principles when a party seeks protection against the consequences of its own negligence. The modern interpretive inquiry must still consider the particular contract as a whole and the legal authorities applicable in its jurisdiction. It would be unsafe to assume that inserting or omitting the word negligence has the same effect in every transaction.
The claim can come from more than one direction
Consider a farm equipment manufacturer selling its operation to another company. The purchaser may promise to assume specified customer obligations after closing. Several years later a farmer alleges that an attachment designed by the former owner caused damage before the sale. That customer isn't necessarily bound by the sellers' internal allocation of liabilities. Whether the buyer must reimburse the seller depends on the agreement, including whose negligent acts are captured, how a third party claim is defined and what notice or defence provisions apply.
Now imagine that the loss occurs after closing because the purchaser modifies the same equipment. Different periods of responsibility, different indemnity provisions or entirely different defendants may become relevant. The timing of the lawsuit alone isn't a reliable way of allocating responsibility. The contract may distinguish the conduct that generated the exposure from the date the demand was first made.
Recent Alberta litigation involving Westlock Terminals and Strongco has generated public commentary about the limits of contractual protection for a seller's earlier negligence. That reporting is useful in identifying the issue, but Binder has not independently inspected the complete reasons for those decisions in preparing this narrower practical explanation. No paragraph specific conclusion or unreviewed judicial language is attributed to the Alberta courts here.
Insurance and contractual indemnity belong in separate files
A party agreeing to indemnify another has made a contractual promise. An insurer's obligation arises under an insurance policy and the law governing that policy. The purchase agreement may have shifted a loss from seller to buyer while leaving both parties with questions about coverage, exclusions, insured entities, notice and policy period. Some CGL forms also contain contractual liability restrictions or particular insured contract provisions. The answer turns on the policy purchased, not the word indemnity appearing in an unrelated document.
If a contract requires one party to defend another, that contractual defence promise isn't necessarily the same as an insurer's duty to defend. The parties should identify who selects counsel, controls settlement, gives instructions, pays expenses and reserves the right to dispute indemnification. They should also consider whether insurance certificates and endorsements actually support the promised allocation. An agreement can create a very real financial obligation even when no insurer agreed to fund it.
The more useful drafting conversation happens before signature. Rather than ask for a standard indemnity, the parties can identify concrete scenarios involving claims based on old work, future modifications, employee injuries, defective products and government obligations. Each scenario should have a clear answer about the intended party responsible and the mechanism for enforcement. The contract doesn't need to predict every lawsuit, but it should resolve the exposures that made the deal important in the first place.
Sources
Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53. The Westlock trial reporting and public Strongco commentary are discovery context only. This article is general commercial guidance, distinct from Binder's longer purchase only analysis of contractual indemnities.