Indemnity provisions are often among the most negotiated and least understood provisions of commercial contracts, and construction contracts are no exception to this rule. Despite, and perhaps because of, the importance of these clauses, they have evolved into an almost impenetrable jumble of legal terminology.

This jumble of words is not, however, without meaning. Although a comprehensive deconstruction of the various provisions of a sophisticated indemnity agreement is beyond the scope of this note, one simple example reveals the importance of a seemingly innocuous word choice.

Indemnity clauses often contain some formulation of the following: Contracting Party A agrees to indemnify Contracting Party B from, for, and against all claims arising out of the Contract.  An educated individual could reasonably assume that this provision could be edited to a simpler formulation—Contracting Party A agrees to indemnify Contracting Party B from all claims arising out of the Contract—without losing any meaning.

Such a seemingly straightforward revision could have dire consequences. Courts in Oregon have held that the omission of the terms “for and against” is evidence that the parties intended to limit the scope of an indemnity provision to third-party claims.  In other words, if Contracting Party A has only agreed to indemnify Contracting Party B from all claims arising out of the Contract, an Oregon court could conclude that Contracting Party B is not entitled to indemnification for its own damages.

If this was the parties’ intent, then this result will not be a surprise. But, if Contracting Party B had negotiated the other provisions of the Contract and allocated its risk based on a mistaken belief that Contracting Party A would be required to indemnify it for damages caused by Contracting Party A, Contracting Party B could find itself faced with a financial liability for which it had not accounted.

As this example reveals, the words used in an indemnity provision can have significance beyond their ordinary meaning. It is imperative that you understand the implications of the changes proposed to an indemnity clause, and the assistance of counsel is invaluable to that end.