What is an Exculpatory Agreement?
Exculpatory agreements are waivers or conditions ranging from a single sentence to an entire page of fine print. Exculpatory agreements relieve a party of delicate responsibility for negligence or misfeasance, while saving it from liability ultimately through a suit, settlement or verdict. These exculpatory agreements are not unusual. Companies use them all the time—think of the ski area releases you sign, or the waivers at the carnival. Exculpatory agreements come in all shapes and sizes in many different industries. In the tourist industry , a common form of exculpatory agreement is the ski pass that waives all future negligence. A scuba diving school may require students to sign an exculpatory agreement before attending lessons. The scuba exculpatory agreement in fact comes in the form of a written "contract" or "agreement" signed by those seeking scuba instruction. It arguably serves as the basis for limiting liability in the event of an accident, illness or injury while taking the lessons. Related products and services, of which there may be innumerable examples, include those identifying inherent dangers that cannot be avoided with precautions, such as a high ropes course or hiking, mountain climbing and surfing schools and excursions. While each of these may have other aspects as well, all involve a risk the providers may exclude. Traditional principles of exculpatory agreements offer an opportunity for the company to avoid liability for personal injury to a customer or guest.
Legality of Exculpatory Clauses
Exculpatory clauses have long generated strict scrutiny and are typically found to be unenforceable if the plaintiff was a member of the public "at large," such as passengers on a ship, and if the defendant was acting with gross negligence or maliciously. McGowan v. Mountain Park Condominiums Ass’n., 45 P.3d 161 (Colo. 2002); May v. Federal Express Corp., 390 F.Supp. 2d 1 (D.Me. 2005); Thomas v. Pacific Surf Designs, Inc., 229 F.3d 928 (9th Cir. 2000). In this regard, questions arise regarding whether a party may delegate to others duties that the law considers to be non-delegable or cannot be waived in contract. On the other hand, under certain circumstances, exculpatory clauses are enforceable. The circumstances that favor the use of an exculpatory clause include a written document in which the parties agree to a release or waiver of liability, where the scope of the release is clearly set forth, so that both parties have clear expectations as to their roles and duties under the agreement, and where the injured party has particular susceptibilities which may be overlooked if they do not receive adequate, extra scrutiny. Gallagher v. Starins, Ltd., 20 Cal. Rptr. 2d 817, 819, 38 Cal. App. 4th 376, 379 (Cal. Ct. App. 1993). If the parties had equal bargaining power without one being at a disadvantage, and if the injured party had an opportunity for independent advice, then a court will more likely enforce the intended risk-shifting agreement that is expressly set forth. In addition, if a party can establish that it did not contribute to the risk, is only vicariously liable, or is not engaged in an "extrahazardous" activity, then a court will find the exculpatory clause valid. Smith v. I.C. International Consortile S.p.A., 244 F. Supp. 2d 481 (D.N.J. 2002). From a drafting perspective, an exculpatory clause should state the duty of the indemnitor, the purpose of the clause, the disclaimed or limited liability, and considerations for determining compensation. This last consideration is crucial because if the parties to an exclusionary or limitation of liability clause are sophisticated and currently-bargaining parties, a court will require the indemnitor to self-describe as to value and risk acceptance. To ensure a court’s acceptance of the parties’ negotiated risk-sharing scheme, the scope of the indemnification should be scrupulously recited and the parties’ intent must be plain from the scope of the clause. Bowersox v. Jackson County School Dist. No. 40-2, 144 P.3d 561 (Idaho 2006).
Common Applications and Examples
Exculpatory agreements are particularly common in the sports and recreation industry given the frequency of injury during sporting events, such as a car accident at a go-kart track or a fall from a trampoline. They are also used frequently in gyms and fitness centers, where operating equipment such as treadmills can cause injury, as well as in equine law, for example, a contract between an owner and a pet boarding facility. Exculpatory agreements are often found in residential rental agreements from landlords and property management companies. Individuals and businesses will also find them in retainer agreements for a variety of professional services. For example, a lawyer may provide a retainer agreement that is an exculpatory agreement if it involves work for a client in a location that may be dangerous or risky, such as the worksite of an excavation or demolition. Similarly, an artist stepping onto a cherry picker to paint a ceiling may be asked to provide an exculpatory agreement to exonerate the museum or gallery she is decorating.
As a case in point, a recent New York Supreme Court case involved a case brought against the New York City Fire Department (FDNY). The plaintiff was a firefighter who was injured while clearing debris following Hurricane Sandy in 2012. The firefighter filed a lawsuit against the FDNY, which borrowing a term from the construction industry, claimed the doctrine of "primary assumption of risk" should apply—through planks that were created, distributed and stored by the [plaintiff] in connection with Hurricane Sandy were defective, they did not cause plaintiff’s injuries. The FDNY also argued it had not breached a duty of care owed to the plaintiff as a firefighter, who simply assumed the risk of injury while responding to an emergency. The plaintiff did, and the court agreed, that the FDNY had required him to sign an exculpatory agreement, and specifically referenced the case of Becker v. Schwartz (1981) 204 AD2d 606, where the court stated "An exemption would seem to bear adverse consequence only if a manifestation of negligence could have been expected."
The Becker court stated "Another consideration is that a special hazard may be present by virtue of the position of the claimant. Someone who has knowledge, experience and expertise superior to the claimant owes him heightened duties of care. In short, under the proper circumstances, it is possible to structure an exemption for the negligent acts of a defendant even when dealing with an ordinary risk." The Becker court had followed the lawsuit of a participant in a boxing match whose trainer made the boxer sign an exculpatory agreement with the promoter of the match. The agreement stated that the boxer would not seek damages from the promoter for any injuries or damages sustained in the match. In that case, the boxer was injured severely, but the court ruled that because the boxer was an experienced prizefighter, he could be held to the standard of care that was expected of professionally trained boxers due to the exculpatory agreement he signed.
Dangers and Limitations
While exculpatory agreements are generally perceived as providing some measure of protection from liability, this can prove to be a false sense of security. The enforceability of these agreements varies between jurisdictions and the circumstances in which they are signed and used. Courts have long recognized that exculpatory agreements have the potential to be oppressive towards one party in favor of another. In one case, a skiing facility that required skiers to accept the liability waiver as a condition of getting on the ski lift, was not completely protected from liability for its failure to mark an area with a tree with better visibility. (Giallanza v. Douglas Cty., 88 P.3d 152, 158 (Idaho 2004)). A court in Arkansas has held that "when a corporation is defendant in a tort action, and it appears that the injury is the result of a violation of a statute which provides a penalty, the court may decline to enforce an exculpatory clause." (Murphy v. Murphy Oil Corp., 944 S.W.2d 535, 537 (Ark. 1997) (citation omitted)).
As previously indicated, exculpatory agreements are commonly used in the hospitality and recreation industry, particularly in the skiing context, but these types of agreements are not limited to those industries. They are used by gyms, health clubs, diving schools, airlines, and outdoor activity outfitters. While these agreements provide some protection to the company, they have been held unenforceable, at least in some situations.
In one case, an attraction’s assumption of risk agreement was found to violate California Civil Code section 1668. (Tsemetzin v. Coast Catamaran Cruises, Ltd., 57 Cal. App. 4th 13 (1997). Similarly, where an exculpatory agreement was used by a skydiving company to protect itself from liability caused by skydivers and the company injured a skydiver during routine rigging work, the court held that the exculpatory agreement did not "protect the company from its own negligence in performing the work that caused the injury." (Tsemetzin v. Coast Catamaran Cruises, Ltd., 57 Cal. App. 4th 13 (1997).
Further, generally speaking, exculpatory agreements do not waive claims for gross negligence, intentional torts or violations of public policy. For example, in Washington, an exculpatory agreement does not waive liability for "injuries intentionally caused or grossly negligently inflicted". (Tunkl v. Regents of University of California, 383 P.2d 441, 444 (Cal. 1963). Also, in New York, an exculpatory agreement will be deemed "void as contrary to public policy" if the defendant "is engaged in performing a service that is of great importance to the public,. . . is a service that is available to the public on a non-selective basis, and . . . must be perform[ed] by the provider with a high degree of skill". (Nolan v. Fay, 52 N.Y.S. 3d 701 (2016)(aff’d, 162 A.D. 3d 1123 (2018)(internal citations omitted).
Lastly, legal indemnification against damages arising from negligent conduct is also generally prohibited by public policy (Newman v. Greenblatt, 196 Cal. Rptr. 3d 668, 679 (Cal. App. 2015). An employer/employee manual, practice, or other policy that indemnifies an employee for claims to which the employer is prohibited from indemnifying an employee under Labor Code § 2864 is therefore void. (In re Lloyd’s Am. Trust Fund Litig., 172 F.R.D. 296, 307 (Ct. No. Cal. 1997)).
How to Draft Successful Exculpatory Agreements
The key to an effective exculpatory agreement is clarity. Vague contracts without specific obligations or rights are more likely to run afoul of the general rules governing liability waivers. Courts frequently are asked to enforce exculpatory agreements, and interpretations of those agreements vary widely from jurisdiction to jurisdiction. In some states, exculpatory agreements are valid and enforceable, while in others they are void either by statute or public policy. A common approach by courts when evaluating the enforceability of exculpatory agreements is whether the agreement is conscionable, or in other words not so unfair or one-sided as to be unjust. Other states have held exculpatory agreements to be invalid unless expressly authorized by statute . Exculpatory agreements generally are riskier if they are entered into by vulnerable and disadvantaged parties. For example, courts are more likely to hold exculpatory agreements to be conscionable when they are made between sophisticated business entities than between a professional rescuer and a risk-accepting layperson. Courts considering exculpatory agreements have been particularly concerned with the bargaining power of the parties. They have struck down exculpatory agreements formed under circumstances that raise concerns of fraud or duress, such as a party benefiting from an exculpatory clause in a contract without having bargained for or paid for the protection. Additionally, courts are less likely to confer immunity from liability for negligent acts than from willful and intentional acts.
Notable Court Cases and Precedents
Several seminal cases have influenced the development and enforcement of exculpatory clauses, setting important precedents and shaping how courts interpret these types of agreements.
In Tunkl v. Regents of the University of California (1963) 60 Cal.2d 92, the Supreme Court of California reviewed various factors to determine whether a particular agreement was exculpatory in nature and adverse to public policy. The factors mainly revolve around the nature of the services offered, whether the services are offered to the public generally or a select group, and whether the provider exerts undue influence over the party purportedly waiving its rights. While not free from criticism, courts have frequently looked to Tunkl when deciding the enforceability of exculpatory agreements.
In a representative case, Sengpiah v. SPCA of San Francisco, the court, relying heavily on Tunkl, found that an adoption contract for a dog was not exculpatory because it contained terms "placed in the presumption zone of indemnification under Tunkl." The agreement, intended to protect the SPCA from liability for certain actions taken by the dog’s new owner, included both express and implied waivers of liability, both for the SPCA and generally for the new owner’s role of caring for that dog and all potential animal-related liabilities. The agreements were long and complex, ultimately creating the "impression" that a party should take the document ‘seriously.’ However, the contract was not between two sophisticated parties, but one involving a family adopting a dog that was a promise to be held close against the dog and be held responsible for its health and care. The court rejected the SPCA’s arguments that the new owner "had an opportunity to read the agreement," and denied that "the fact that agreement is lengthy and confusing is not an excuse for the SPCA failing to give the new owner an opportunity to ask questions and for the SPCA to answer those questions." The fact that the dog was subjected to commonly risk hazards inherent to dog ownership for which the owner could be liable damages did not alter its unreasonableness.
The Washington legislature has rejected the idea that Tunkl determines the enforceability of a waiver for public policy reasons, and indeed the majority of courts has refused to extend Tunkl to this extent. In fact, some courts have gone as far as saying that Tunkl has been criticized as too broad. In Butz v. Spokane Scrap Inc. (2014) 179 Wash. App. 561, the court determined inapplicable the Tunkl blanket rule of reasonableness because "the complex factors of each case must be weighed against the public-policy factors involved."
While California is the only state with clear precedent on exculpatory clauses involving services, other states have found such provisions enforceable under different circumstances. The Florida Supreme Court upheld the application of an exculpatory clause in Buris v. Forever Florida Inc., (2014) 141 So. 3d 247 after analyzing several factors. The court was persuaded by the fact that the activity undertaken was distinctly dangerous and required participants to sign an exculpatory clause.
Impact on Consumers
The impact of exculpatory agreements on consumers is of prime importance and must be balanced against the weightier considerations of consumer protection. Exculpatory clauses which are found to be contrary to public policy are unenforceable. For example, exculpatory provisions in employment contracts permitting physicians and medical professionals to escape liability for negligent acts are held to be unenforceable as a violation of public policy. Garcia v. Vanguard Packing, Co., 230 Cal. App. 3d 899, 281 Cal. Rptr. 831 (Cal. App. 1991). Security services providers may not protect themselves from liability resulting from their premises security services. Nelson v. Hallmark Cards, Inc., 48 Cal. App.4th 996, 55 Cal. Rptr. 2d 581 (Cal. App. 1996).
Exculpatory clauses are disfavored by courts and are strictly construed as it is generally in the public interest that a person who is injured by the negligent or willful misconduct of another should have a remedy for his or her injuries. In Martin v. Rabun, 979 F. Supp. 1044, 1047 (N.D. Cal. 1997), a rental car company attempted to exculpate itself from liability for its own negligence by means of a clause in its rental agreement. The court held the rental company’s clause violated public policy which placed paramount importance on the right of persons injured by negligence to collect for their injuries. The agreement was therefore unenforceable.
Exculpatory agreements are not strictly prohibited , but they are subject to specific restrictions and must be "reasonably comprehensible" to be enforceable. O’Callaghan v. Waller & Beckwith Realty Co., 225 N.E.2d 190, 193, 12 Ill. Dec. 664 (Ill. 1967). Exclusionary clauses seeking to eliminate entirely the possibility of liability for negligent conduct, or attempting to grant exculpatory protection regarding grossly negligent conduct, are generally disfavored. Whether an exculpatory clause constitutes an unreasonable restraint of trade will be determined by the "totality of the circumstances" and consideration will be given to the nature of the contractual relationship involved, and expressly to the concern that a party may be left without a remedy for non-performance of contractual obligations. L. Albert & Son Corp. v. Armstrong Rubber Co., supra, 178 Conn. at 121-122, 423 A.2d at 88; see Restatement (Second) of Contracts ∋ 195.
Agreements to arbitrate are not exculpatory agreements. An exculpatory clause exempts one side from liability under all circumstances. An agreement to arbitrate is not exempting one side from liability. Rather, it is a well-recognized and legally sanctioned procedure for resolution of disputes. See, e.g., Collins v. D.R. Horton, Inc., supra, 272 S.W.3d at 450; In re Prudential Ins. Co. of Am. Sales Practice Litig. Agent Actions, supra, 148 F.3d at 307.