Hi Dave,
You're correct, if a paragraph does not have an shd element then it will walk the style hierarchy and use the background set at closest element in the hierarchy or none if no elements have a background.
From "17.3.1.31 shd (Paragraph Shading)" in ISO-29500 it states:
"If this element is omitted on a given paragraph, its value is determined by the setting previously set at any level of the style hierarchy (i.e. that previous setting remains unchanged). If this setting is never specified in the style hierarchy, then no paragraph shading shall be applied."
Best,
Mike Bowen
Escalation Engineer Microsoft Open Specifications