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The Great Escape: How to Draft Exculpatory Clauses That Limit Or Extinguish Liability

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The Great Escape: How to Draft Exculpatory Clauses That Limit Or Extinguish Liability THE GREAT ESCAPE How to Draft Exculpatory Clauses That Limit or Extinguish Liability by Steven B. Lesser xculpatory clauses extinguish or limit liability suggestions to assist counsel in drafting enforceable of a potentially culpable party through the use exculpatory clauses. of disclaimer, assumption of risk and indemni- E fication clauses as well as releases of liability. Legislation and Public Policy Considerations For decades, Florida courts have wrestled with issues Limit Enforcement of Exculpatory Clauses relating to the enforcement of exculpatory clauses where Exculpatory clauses will be enforced as long as the lan- liability arises from personal injury, real estate, construc- guage is clear and unequivocal.1 These same concepts tion, and commercial disputes. apply to indemnification agreements, which shift liabil- These provisions gain significance as parties seek to ity for damages to another party, and to releases of li- shift the monetary risk of business transactions to oth- ability.2 On the other hand, exculpatory clauses that ex- ers. Frequently these clauses are showcased in contrac- tinguish liability for intentional torts or reckless harm tual agreements involving common carriers, promoters will generally be declared null and void.3 of sporting events, providers of design/construction ser- Florida statutes prohibit the use of exculpatory clauses vices, and among participants to e-commerce transac- in certain transactions such as residential lease agree- tions. As lawyers, we constantly draft and interpret ex- ments that disclaim or limit a landlord’s liability to a culpatory clauses hoping that the product of our efforts tenant for breach of the implied warranty of habitabil- will withstand judicial scrutiny. Recognizing that the eco- ity;4 condominium documents that disclaim liability for nomic stakes often are high, counsel must be aware of breach of the statutory implied warranties of fitness and the pitfalls associated with the drafting and interpreta- merchantability to a purchaser of a new condominium;5 tion of such clauses. These issues should be of enormous agreements that waive the right to assert a construction interest to lawyers because when the deal goes sour, dis- lien law claim in advance of improving real property;6 gruntled clients may seek to recoup their losses by chal- indemnification provisions in construction contracts that lenging the lawyer’s advice through claims for legal mal- encompass claims or damages resulting from gross negli- practice. gence, willful, wanton, or intentional misconduct, or for This article examines how Florida courts interpret statutory violations.7 Likewise, a clause in a fee agree- exculpatory language as utilized in releases, waivers ment that exculpates or limits the liability of an attor- of liability, assumption of risk and indemnification ney for his own negligence to avoid a claim for legal mal- agreements as well as other types of contracts. As simi- practice is prohibited.8 lar legal principles apply to drafting these various Florida law prohibits common carriers such as an air- types of clauses, they will collectively be discussed and line or railroad from extinguishing liability for its own referred to throughout this article as “exculpatory negligence when acting as a common carrier, as opposed clauses.” In addition, this article will offer practical to when it engages in private enterprise.9 In interpreting 10 THE FLORIDA BAR JOURNAL/NOVEMBER 2001 these clauses, courts typically will effort to escape liability for breach lieve a party of its own negligence is analyze the relative bargaining of the implied warranty of habit- clear and unequivocal.23 In describ- strength of the parties, especially ability, the developer asserted that ing exculpatory language that will when the indemnitee is a public util- the buyer executed a contractual be enforced, one court stated, “The ity, common carrier, or a provider of disclaimer of “all warranties, writ- wording of such an agreement must an essential public service to a large ten or oral.”15 However, the dis- be so clear and understandable that group of individuals.10 This analy- claimer clause failed to specifically an ordinary and knowledgeable sis is employed to evaluate whether mention implied warranties and, party to it will know what he is con- a clause runs afoul of public policy.11 consequently, the court declined to tracting away.”24 It is noteworthy that public policy rule that these warranties were dis- Drafters of exculpatory clauses considerations will defeat an excul- claimed. Other courts have been re- must be sufficiently specific to re- patory clause if doing so would frus- luctant to enforce disclaimers of im- lease liability for certain conduct yet trate a statute or ordinance that has plied warranties.16 Sellers of be broad enough to encompass other the very purpose of insuring the residential real estate face greater related acts and conduct that may safety of persons.12 This concept challenges when attempting to dis- result in liability. The same chal- would apply to violations of the fire claim any duty to disclose the exist- lenge applies to drafting assumption code, building codes, or any other ence of facts that may materially of the risk clauses. A plethora of penal statute or ordinance imposing affect the value of the property. The cases discussing these various is- a positive duty. Florida Supreme Court has held sues arise in the context of summary Florida courts have failed to that the “as is” sale of residential judgment. For example, in one un- squarely address whether the com- real estate does not relieve the seller reported trial court decision,25 a par- mon law implied warranty associ- from the duty to disclose latent de- ticipant to a boxing match executed ated with a real estate transaction fects to a buyer.17 a “Release, Assumption of Risk and can be disclaimed. In Hesson v. Indemnification Agreement” in fa- Walmsley Construction Co., 422 So. General Rules for Drafting vor of the owners and operators of 2d 943 (Fla. 2d DCA 1982), the court Exculpatory Clauses the facility hosting the event.26 The addressed whether the implied war- At the heart of every analysis over agreement waived and released the ranty of habitability in the package enforcement of an exculpatory owner from all “risks inherent in sale of a new home and lot by a clause lies the issue of conspicuous- boxing.”27 During the boxing match builder-vendor to an original pur- ness of the language employed. In the plaintiff sustained injuries and chaser could be disclaimed.13 In con- one case, a condominium conversion thereafter initiated a lawsuit sidering this issue the court com- developer successfully disclaimed against the owner for negligence mented as follows: all express and implied warranties arising from the owner’s failure to One final point should be mentioned. because the disclaimer was bold and provide emergency post-injury medi- Disclaimers under the Uniform Com- conspicuous.18 In the sale of goods, cal treatment.28 The owner’s motion mercial Code cannot apply here since under the Florida version of the Uni- for summary judgment was denied the seller is not a “merchant,” and the form Commercial Code,19 a dis- based upon the fact that the agree- house and lot are not “goods” within sections 672.104 and .105, Florida Stat- claimer of a warranty must be in ment failed to specifically release utes (1981). See Gable v. Silver. How- writing and conspicuous. On this and hold harmless the owner for his ever, we know of no reason why parties score, conspicuous means a larger own negligence.29 Additionally, the to a contract cannot mutually agree on type size, a different type style, e.g., the reallocation of risks such as sub- agreement was devoid of any lan- surface conditions if the disclaimer is bold or all capitals, or a different guage applicable to events that in clear and unambiguous language and color.20 While this statute is not con- arose following the fight.30 In that clearly reflects both parties’ expectations trolling beyond the sale of goods, the instance the agreement was strictly as to what items are not warranted. See Sloat v. Matheny, 625 P.2d 1031 (Colo. underlying rationale suggests that confined to “risks inherent in box- 1981); Note, Housing Defects: similar considerations would apply ing” and nothing more. Homeowners Remedies—A Time for to exculpatory language utilized in Similarly, in O’Connell v. Walt Legislative Action, at 88. (Emphasis other transactions such as those in- Disney World Company, 413 So. 2d added.).14 volving real estate.21 444 (Fla. 5th DCA 1982),31 a nine- Following the lead of Hesson, an- year-old child sustained injuries other court acknowledged that an Intent of the Parties Is of while horseback riding at Walt “implied warranty can be avoided by Paramount Importance Disney World. Prior to participating a disclaimer in the documents of the Intent of the parties is of para- in this activity, the child’s parents sale transaction.” In re Barrett mount importance when determin- executed a document that released Home Corp., 160 B.R. 387, 390 (M.D. ing the enforcement of disclaimers, and held harmless Walt Disney Fla. 1993). In Barrett, a bankrupt waivers, releases of liability, and in- World from liability.32 In addition, developer constructed a home below demnification clauses.22 Exculpa- the form executed by the parents the required elevation, which re- tory clauses although disfavored consented to the minor’s “assump- sulted in frequent flooding. In an will be enforced if the intent to re- tion of the risks inherent in horse- 12 THE FLORIDA BAR JOURNAL/NOVEMBER 2001 back riding.”33 During the course of When confronted with enforcing Fidesys Corp. N.V., 570 So. 2d 436, the trail ride a Walt Disney World exculpatory clauses, courts consider 437 (Fla.
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