How to draft exculpatory clauses that limit or extinguish liability.

AuthorLesser, Steven B.
PositionThe Great Escape - Cover Story - Florida law

Exculpatory clauses extinguish or limit liability of a potentially culpable party through the use of disclaimer, assumption of risk and indemnification clauses as well as releases of liability. For decades, Florida courts have wrestled with issues relating to the enforcement of exculpatory clauses where liability arises from personal injury, real estate, construction, and commercial disputes.

These provisions gain significance as parties seek to shift the monetary risk of business transactions to others. Frequently these clauses are showcased in contractual agreements involving common carriers, promoters of sporting events, providers of design/construction services, and among participants to e-commerce transactions. As lawyers, we constantly draft and interpret exculpatory clauses hoping that the product of our efforts will withstand judicial scrutiny. Recognizing that the economic stakes often are high, counsel must be aware of the pitfalls associated with the drafting and interpretation of such clauses. These issues should be of enormous interest to lawyers because when the deal goes sour, disgruntled clients may seek to recoup their losses by challenging the lawyer's advice through claims for legal malpractice.

This article examines how Florida courts interpret exculpatory language as utilized in releases, waivers of liability, assumption of risk and indemnification agreements as well as other types of contracts. As similar legal principles apply to drafting these various types of clauses, they will collectively be discussed and referred to throughout this article as "exculpatory clauses." In addition, this article will offer practical suggestions to assist counsel in drafting enforceable exculpatory clauses.

Legislation and Public Policy Considerations Limit Enforcement of Exculpatory Clauses

Exculpatory clauses will be enforced as long as the language is clear and unequivocal. (1) These same concepts apply to indemnification agreements, which shift liability for damages to another party, and to releases of liability. (2) On the other hand, exculpatory clauses that extinguish liability for intentional torts or reckless harm will generally be declared null and void. (3)

Florida statutes prohibit the use of exculpatory clauses in certain transactions such as residential lease agreements that disclaim or limit a landlord's liability to a tenant for breach of the implied warranty of habitability; (4) condominium documents that disclaim liability for breach of the statutory implied warranties of fitness and merchantability to a purchaser of a new condominium; (5) agreements that waive the right to assert a construction lien law claim in advance of improving real property; (6) indemnification provisions in construction contracts that encompass claims or damages resulting from gross negligence, willful, wanton, or intentional misconduct, or for statutory violations. (7) Likewise, a clause in a fee agreement that exculpates or limits the liability of an attorney for his own negligence to avoid a claim for legal malpractice is prohibited. (8)

Florida law prohibits common carriers such as an airline or railroad from extinguishing liability for its own negligence when acting as a common carrier, as opposed to when it engages in private enterprise. (9) In interpreting these clauses, courts typically will analyze the relative bargaining strength of the parties, especially when the indemnitee is a public utility, common carrier, or a provider of an essential public service to a large group of individuals. (10) This analysis is employed to evaluate whether a clause runs afoul of public policy. (11) It is noteworthy that public policy considerations will defeat an exculpatory clause if doing so would frustrate a statute or ordinance that has the very purpose of insuring the safety of persons. (12) This concept would apply to violations of the fire code, building codes, or any other penal statute or ordinance imposing a positive duty.

Florida courts have failed to squarely address whether the common law implied warranty associated with a real estate transaction can be disclaimed. In Hesson v. Walmsley Construction Co., 422 So. 2d 943 (Fla. 2d DCA 1982), the court addressed whether the implied warranty of habitability in the package sale of a new home and lot by a builder-vendor to an original purchaser could be disclaimed. (13) In considering this issue the court commented as follows:

One final point should be mentioned. Disclaimers under the Uniform Commercial Code cannot apply here since the seller is not a "merchant," and the house and lot are not "goods" within sections 672.104 and .105, Florida Statutes (1981). See Gable v. Silver. However, we know of no reason why parties to a contract cannot mutually agree on the reallocation of risks such as sub-surface conditions if the disclaimer is in clear and unambiguous language and clearly reflects both parties' expectations as to what items are not warranted. See Sloat v. Matheny, 625 P.2d 1031 (Colo. 1981); Note, Housing Defects: Homeowners Remedies -- A Time for Legislative Action, at 88. (Emphasis added.). (14)

Following the lead of Hesson, another court acknowledged that an "implied warranty can be avoided by a disclaimer in the documents of the sale transaction." In re Barrett Home Corp., 160 B.R. 387,390 (M.D. Fla. 1993). In Barrett, a bankrupt developer constructed a home below the required elevation, which resulted in frequent flooding. In an effort to escape liability for breach of the implied warranty of habitability, the developer asserted that the buyer executed a contractual disclaimer of "all warranties, written or oral." (15) However, the disclaimer clause failed to specifically mention implied warranties and, consequently, the court declined to rule that these warranties were disclaimed. Other courts have been reluctant to enforce disclaimers of implied warranties. (16) Sellers of residential real estate face greater challenges when attempting to disclaim any duty to disclose the existence of facts that may materially affect the value of the property. The Florida Supreme Court has held that the "as is" sale of residential real estate does not relieve the seller from the duty to disclose latent defects to a buyer. (17)

General Rules for Drafting Exculpatory Clauses

At the heart of every analysis over enforcement of an exculpatory clause lies the issue of conspicuousness of the language employed. In one case, a condominium conversion developer successfully disclaimed all express and implied warranties because the disclaimer was bold and conspicuous. (18) In the sale of goods, under the Florida version of the Uniform Commercial Code, (19) a disclaimer of a warranty must be in writing and conspicuous. On this score, conspicuous means a larger type size, a different type style, e.g., bold or all capitals, or a different color. (20) While this statute is not controlling beyond the sale of goods, the underlying rationale suggests that similar considerations would apply to exculpatory language utilized in other transactions such as those involving real estate. (21)

Intent of the Parties Is of Paramount Importance

Intent of the parties is of paramount importance when determining the enforcement of disclaimers, waivers, releases of liability, and indemnification clauses. (22) Exculpatory clauses although disfavored will be enforced if the intent to relieve a party of its own negligence is clear and unequivocal. (23) In describing exculpatory language that will be enforced, one court stated, "The wording of such an agreement must be so clear and understandable that an ordinary and knowledgeable party to it will know what he is contracting away." (24)

Drafters of exculpatory clauses must be sufficiently specific to release liability for certain conduct yet be broad enough to encompass other related acts and conduct that may result in liability. The same challenge applies to drafting assumption of the risk clauses. A plethora of cases discussing these various issues arise in the context of summary judgment. For example, in one unreported trial court decision, (25) a participant to a boxing match executed a "Release, Assumption of Risk and Indemnification Agreement" in favor of the owners and operators of the facility hosting the event. (26) The agreement waived and released the owner from all "risks inherent in boxing." (27) During the boxing match the plaintiff sustained injuries and thereafter initiated a lawsuit against the owner for negligence arising from the owner's failure to provide emergency post-injury medical treatment. (28) The owner's motion for summary judgment was denied based upon the fact that the agreement failed to specifically release and hold harmless the owner for his own negligence. (29) Additionally, the agreement was devoid of any language applicable to events that arose following the fight. (30) In that instance the agreement was strictly confined to "risks inherent in boxing" and nothing more.

Similarly, in O'Connell v. Walt Disney World Company, 413 So. 2d 444 (Fla. 5th DCA 1982), (31) a nine-year-old child sustained injuries while horseback riding at Walt Disney World. Prior to participating in this activity, the child's parents executed a document that released and held harmless Walt Disney World from liability. (32) In addition, the form executed by the parents consented to the minor's "assumption of the risks inherent in horse-back riding. (33) During the course of the trail ride a Walt Disney World employee, on horseback, caused a stampede. (34) As a result, the child was thrown from the horse and thereafter, his parents initiated a lawsuit to recover damages. (35) The court denied summary judgment filed by Walt Disney World. (36) In reaching its decision the court held that the release form did not specifically mention that Walt Disney World would be released for the negligence of its own employees. (37) As a general...

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