Hedge Clause

"They can't block the view!" One kind of hedge clause...one you might find in a deal you struck when your neighbors hired an ambitious new gardener.

In finance, it relates to a clause that indemnifies the authors of a financial document against liability if an error gets spotted later.

You've been put in charge of writing the press release for your company's annual earnings report. You get the internal documents, which show a profit of $10 million in the quarter. You write a release trumpeting the profit. Minutes after you send the doc out to journalists, you get an email from the finance department: there was a typo in the internal documentation. The company actually posted a loss of $10 million for the quarter.

Uh-oh. You call your lawyer to see if you're personally liable for the misinformation you just disseminated to millions of actual and potential investors. Luckily, there was a hedge clause, so the answer is "no." That clause provides you with indemnity against the error. Thanks to this clause...looks like Christmas came early this year.