Increasingly businesses are considering risk allocation issues as they contract with one another. Who bears the risk of claims for personal injury and property damage has a direct bearing on the bottom line of the profitability of the agreement for each party. In this regard, indemnification language can be a negotiating point as parties attempt to place the risk for each other’s and even their own negligence.

It is well settled in New Jersey that in order to transfer the risk of loss for one’s own negligence, the contract language must be specific and include an unambiguous statement that the indemnitee will be indemnified for its own negligence. Azurak v. Corporate Property Investors, 175 N.J. 110 (2003). To the extent that a clause may be ambiguous, the courts will construe it strictly against the indemnitee. Thus, it is important to clearly word such language to capture the true intent of the contracting parties.

Of course, as legalize creeps into a document, clarity can sometimes be obscured. Yet, recently, the appellate division drew a line in the sand. In Sayles v. G & G Hotels, Inc., a hotel franchisor was granted indemnification from a hotel owner and operator. The trial court agreed that the clause in question included “too many, far too many disjunctives, conjunctives, commas and an insufficient amount of periods.” And yet, the court applied a common sense interpretation of the clause.

The term in question included several scenarios for indemnification ending with the phrase “including when the active or passive negligence of [the indemnitee] is alleged or proven.” In an argument worthy of author Lynn Truss of Eats, Shoots and Leaves fame, the indemnitor argued comma placement and relied upon what the court found to be a “crabbed” and contrived reading of the term to avoid indemnification. The appellate division concurred that the clause could have been better written, but refused to find an ambiguity simply because the language was perhaps cumbersome.

The lesson of the case is that while New Jersey courts scrutinize indemnification agreements and strictly construe them against the indemnitee, if the term fairly expresses the intent that the indemnitee is to be indemnified for its active or passive negligence, alleged or proven, our courts will enforce it as written.

For more information, contact Denise Fontana Ricci at .