ENFORCEABILITY OF EXCULPATORY CLAUSES

ENFORCEABILITY OF EXCULPATORY CLAUSES

Courts have had varied opinions on the enforceability of exculpatory clauses in contracts. Exculpatory clauses or the “release from liability” clauses are used to limit a party’s liability from its own negligence. On one hand, it closes the door for justice to an injured plaintiff and on the other hand sets the defendant scot free even after his own negligence.

However, merely adding an exculpatory clause to an agreement is not sufficient to make it enforceable.

The Second Restatement of Contracts offers guidelines regarding the validity of such clauses:
§ 195 Term Exempting From Liability for Harm Caused Intentionally, Recklessly, or Negligently (1) A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy. (2) A term exempting a party from tort liability for harm caused negligently is unenforceable on grounds of public policy if: (a) the term exempts an employer from liability to an employee for injury in the course of his employment; (b) the term exempts one charged with a duty of public service from liability to one to whom that duty is owed for compensation for breach of that duty, or (c) the other party is similarly a member of a class protected against the class to which the first party belongs. (3) A term exempting a seller of a product from his special tort liability for physical harm to a user or consumer is unenforceable on grounds of public policy unless the term is fairly bargained for and is consistent with the policy underlying that liability.

Most courts do not favor contracts with such clauses and construe them strictly. Courts have stressed on the fact that to make an exculpatory clause enforceable, the language must be clear and unambiguous.  “Exculpatory clauses are only unambiguous and enforceable where the language unambiguously demonstrates a clear and understandable intention to be relieved from liability so that an ordinary and knowledgeable person will know what he or she is contracting away"[1].

In Pennsylvania, the courts found that "… an exculpatory clause is valid where three conditions are met. First the clause must not contravene public policy. Secondly, the contract must be between persons relating entirely to their own private affairs and thirdly, each party must be a free bargaining agent to the agreement so that the contract is not one of adhesion."[2].

In Maryland and the District of Columbia, for an exculpatory clause to be valid, it need not contain or use the word "negligence" or any other "magic words." An exculpatory clause is sufficient to insulate a defendant from his or her own negligence as long as its language clearly and specifically indicates the intent to release the defendant from liability for personal injury caused by the defendant's negligence. 

However, as in other states there are three public policy exceptions – (1) when the party protected by the clause intentionally causes harm or engages in acts of reckless, wanton, or gross negligence; (2) when the bargaining power of one party to the contract is so grossly unequal so as to put that party at the mercy of the other's negligence; and (3) when the transaction involves the public interest.[3]

While, in New York, exculpatory clauses are enforceable, the General Obligations Law § 5-326 makes “[a]greements exempting pools, gymnasiums, places of public amusement or recreation and similar establishments from liability for negligence void and unenforceable.

In most states, exculpatory clauses are enforceable subject to certain parameters being met. They are normally enforced unless it violates a statute, is gained through inequality of bargaining power, or is contrary to a substantial public interest.

However, there are a few states who out rightly make such clauses unenforceable, namely, Virginia, Louisiana, and Montana. Article 2004 of the Louisiana Civil Code provides that “Any clause is null that, in advance, excludes or limits the liability of one party for intentional or gross fault that causes damage to the other party.” “Any clause is null that, in advance, excludes or limits the liability of one party for causing physical injury to the other party.”[4]  

The Montana Code Annotated § 28-2-702 prohibits contracts to have as their object, directly or indirectly, the exemption of anyone from responsibility for their own fraud, for their willful injury to the person or property of another, or for their willful or negligent violation of the law. Therefore, “any exculpatory clause or release of liability clause seeking to relieve a tortfeasor from liability for negligent conduct is not valid.”[5]

Even the courts of Virginia, do not support exculpatory clauses. The court in Manchanda v. Hays Worldwide, LLC[6] held that Virginia public policy does not permit the Court to view such agreements as decisive evidence that a party expressly assumed the risk of Defendants’ negligence. In Hiett v. Lake Barcroft Community Ass'n, Inc., the Virginia Supreme Court ruled that an entry form in which a triathlete purported to "release and forever discharge any and all rights and claims for damages" was void as against public policy[7]. This policy extended from 100 years of Virginia precedent establishing that "provisions for release from liability for personal injury which may be caused by future acts of negligence are prohibited 'universally.”[8]

There is no set way to make an exculpatory clause enforceable, however, keeping the language simple, clear and such that it leaves no scope for ambiguity can definitely help in achieving the desired goal. While drafting such clauses, it would be worthwhile to spend some time in screening contracts that have already been scrutinized in your jurisdiction and adopt similar language.