May 21, 2015
In contracts, leases, loan documents and other agreements, we frequently see a request that one party indemnify the other against certain occurrences.
As a simple and general proposition, indemnity provisions are ill-advised for the indemnitor. They are open-ended access to one’s checkbook for all sorts of claims, and are usually accompanied by a duty to defend against those claims (i.e., pay for an attorney to defend a suit), whether meritorious or frivolous. Thus, a short indemnity paragraph could lead to hundreds of thousands or millions of dollars of unexpected and unintended liability. As a rule: Not a good idea.
Taking this concept over into the world of real estate sales, as is explained in this blog entry, Real Estate 101: Types of Deeds in Ohio, when a seller executes and delivers a warranty deed in Ohio (General Warranty Deed or Limited Warranty Deed), he is essentially providing an open-ended indemnification to a buyer of that property — and his successors down the chain of title — against certain title claims. Among other things, a warranty covenant is a promise to defend against certain claims to the title from a third party.
Ohio Courts have ruled that the failure to provide that defense will mean the grantor must pay the attorneys fees of the grantee to so defend the title. Hollon v. Abner, 1997 WL 602968 (Ohio App. 1 Dist., 1997).
Thus, although it is “standard operating procedure” in real estate transactions to provide a warranty deed, sellers may want to re-think that (starting with the signing of the contract as that instrument dictates what form of deed is required at the closing) and understand their open-ended exposure from a warranty deed.