Deconstructing the Indemnification Provision
The contractual and legal mechanisms that parties to oil and gas agreements use to allocate risk are often used without a full understanding of the effects of commonly employed terms and concepts associated with such mechanisms. Among the terms and concepts frequently used, but often misunderstood are: “defend” “indemnify,” “release” “save harmless” and “hold harmless.” The lack of understanding and confusion with respect to this oil patch glossary of terms is not limited to the drafters and litigators of such agreements, but has found its way into the courts as well. Courts in different jurisdictions have created distinctions amongst such phrases without proper legal research into what each word means.2 Good resources are available on the correct meanings of these terms. For example, in Garner's Dictionary of Legal Usage, Bryan Garner examines whether the phrases “indemnify” and either “hold harmless” or “save harmless” are one and the same.3 The following is a general discussion of the words and phrases, e.g., indemnity, release, and defense, used in standard oil and gas contracts to allocate risk.
One of the most common methods to allocate risk in the oil and gas industry is indemnity. Before an indemnity can be effectively drafted, the drafter needs to fully comprehend what an indemnity is and how a court of law will construe it.
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