Contractual Indemnity Provisions

The Maryland Court of Appeals recently reiterated the various legal principles that trigger indemnification rights. In the context of contractual indemnity provisions, the Court recognized three basic types of indemnity provisions: (1) indemnity against loss or damage, under which the indemnitee may not recover until it has made payment or otherwise suffered an actual loss or damage within the scope of the indemnity; (2) indemnity against liability, under which an action may be brought as soon as the liability is legally imposed, as when judgment is entered, even though no actual loss has yet been sustained (the judgment has not been paid); or (3) a promise by the indemnitor “to perform a certain act or make specified payments for the benefit of the indemnitee,” under which an immediate right
of action accrues upon the failure of the indemnitor to perform, regardless of whether any actual damage has been sustained.

As evidenced by these three types of contractual provisions, the risk and exposure for the party providing indemnification in a contact can vary greatly depending upon the type of indemnification provision. Consequently, the indemnification provisions in construction contracts warrant careful scrutiny before execution.