Enforceable Exculpatory Agreements

Sidebars:

• Drafting Exculpatory Agreements

By Alexander T. Pendleton

The Wisconsin Supreme Court has considered personal injury exculpatory agreements five times in the last 15 years, and each time has found the language used insufficient. A lawyer can create an enforceable exculpatory agreement, but the lawyer must draft such an agreement carefully and give consideration to the circumstances surrounding the signing.

The tension between contract and tort law

Exculpatory agreements are contracts made before an injury occurs that relieve a party from liability. ¹ This area of the law is like a geologic fault line where the great legal tectonic plates of tort law and contract law come together under great pressure. As the Wisconsin Supreme Court has said:

"In reviewing an exculpatory agreement for violation of public policy, a court attempts to accommodate the tension between the principles of contract and tort law that are inherent in such an agreement. The law of contracts is based on the principle of freedom of contract; people should be able to manage their own affairs without government interference. Freedom of contract is premised on a bargain freely and voluntarily made through a bargaining process that has integrity. Contract law protects justifiable expectations and the security of transactions. The law of torts is directed toward compensation of individuals for injuries resulting from the unreasonable conduct of another. Tort law also serves the 'prophylactic' purpose of preventing future harm; tort law seeks to deter certain conduct by imposing liability for conduct below the accepted standard of care." ²

In trying to accommodate tort and contract concepts, the courts have announced several general rules. Almost all Wisconsin Supreme Court decisions interpreting exculpatory agreements begin by saying, "In the absence of legislation to the contrary, such contracts are generally valid." ³ Most of the decisions also set forth several other general rules regarding exculpatory contract interpretation, including: 1) "Exculpatory contracts are not favored by the law ..." ⁴; 2) "[S]uch contracts are to be construed strictly against the party seeking to rely on them ..."⁵; and 3) " [C]ourts examine the facts and circumstances of each exculpatory contract with special care to determine whether enforcement of the exculpatory contract in the individual case contravenes public policy." ⁶

The supreme court also has stated often that there are certain circumstances in which an exculpatory agreement will never be enforceable. These include: excusing a party from liability for harm caused intentionally or recklessly; excusing an employer from liability to an employee for injury in the course of the employee's employment; relieving from liability a party who is charged with performing a service of great importance to the public; and excusing from liability a party who possesses a "decisive advantage" in bargaining strength. ⁷

With these general rules and concepts in mind, this article now turns to how the supreme court has applied these rules in specific personal injury cases. What lessons do these cases teach about creating enforceable exculpatory agreements?

Exculpatory agreements in personal injury cases

In Merten v. Nathan,⁸ a 1982 Wisconsin Supreme Court case, a novice horse rider was injured during a riding lesson. The lengthy release the student signed, in addition to containing the usual recitations, stated that the riding school and its instructors "had no insurance covering equestrian activities." While the statement was true when the school originally drafted the form, it was false when the student signed the release. The supreme court in a 6-1 decision held that even though there was no evidence that the student relied upon the misrepresentation, the misrepresentation made the exculpatory agreement void. The moral of the case for lawyers attempting to draft enforceable agreements: Be truthful.

In Arnold v. Shawano County Agricultural Society, ⁹ a 1983 supreme court case, an experienced race car driver was severely injured in a race accident. The driver had signed a lengthy, standard release form. The trial court held the release barred his claim. The supreme court upheld the court of appeals' reversal of that decision. The supreme court held that a material dispute of fact existed regarding whether the parties intended the release to bar claims for "negligent rescue" (the plaintiff alleged his quadriplegia was caused by the rescue team spraying "toxic" chemicals into his burning race car, as opposed to other causes), and for injuries that occurred off the racetrack itself. The moral of the case for drafters: Avoid defining too narrowly the location and actions covered. The moral of the case for plaintiffs' counsel: Consider investigating nonobvious theories of causation.

In Dobratz v. Thomson,¹⁰ a 1991 supreme court case, a member of a water ski stunt team was killed when struck by a boat during a performance. The release the skier signed at the start of the season was broad and released essentially everyone from liability for any injuries occurring "in connection with this event" or "upon said premises." The agreement did not define "this event" or "said premises." Although the court ruled the release was not void on public policy grounds, the court held the agreement was void for vagueness:

"Like the contract in Arnold, this contract did not 'set out any particular conditions concerning the nature of [the activity] and the [location] where it [was] to take place.' For example, it did not specifically indicate that the activity of skiing was included within its scope, although the record does make it clear that skiing was so included. More significantly, the contract did not indicate what particular sort of skiing stunts Mark Dobratz might be asked to perform. It did not specify what level of difficulty or dangerousness might have been associated with such stunts, and the record makes clear that no information whatsoever was provided to Mark Dobratz in this regard before he signed the contract. In fact, when Mark Dobratz signed the contract, the stunts for the season had not been determined. Thus, when he signed the contract, Mark Dobratz could not have knowingly agreed to assume the risk of performing the ill-fated stunt on July 3, 1985. On this basis alone, we hold that the contract is unenforceable as a matter of law." ¹¹

The moral of the case: Drafters should define terms and describe the type of activities in which the participant will be engaged.

In Richards v. Richards, ¹² a 1994 Wisconsin Supreme Court case, a truck driver's wife was injured while accompanying her husband on a trip. Prior to the accident, she had signed a form whereby she both applied for permission to be a passenger and released all claims she might have against the trucking company. In a 4-3 decision authored by Justice Abrahamson, the court held the exculpatory contract was void as against public policy due to a combination of three factors:

"First, the contract serves two purposes, not clearly identified or distinguished. Second, the release is extremely broad and all-inclusive. Third, the release is in a standardized agreement printed on the company's form, offering little or no opportunity for negotiation or free and voluntary bargaining." ¹³

Justice Abrahamson's decision evoked a scathing dissent from justices Day, Steinmetz and Wilcox, who argued that the factors the majority set forth departed from prior decisions and were unworkable in the real world. They were especially critical of the majority's consideration of whether negotiating and bargaining occurred. The moral of the case: The trucking company probably could have made the agreement enforceable merely by conspicuously labeling a section of it "release," and by specifying the release applied only to negligence claims. By taking these two relatively easy drafting steps, the remaining factor (lack of negotiation/bargaining) on its own probably would not have been enough to convince a majority of justices to invalidate the agreement.

The supreme court most recently considered exculpatory agreements in the 1996 case, Yauger v. Skiing Enterprises Inc. ¹⁴ In Yauger, an 11-year-old skier was killed in a tragic accident when she struck a concrete ski lift tower pylon. Prior to the season the skier's father had signed an "application" for a season family lift ticket, which application included release language. The document stated: "I agree that: ... There are certain inherent risks in skiing and that we agree to hold [the ski resort] harmless on account of any injury incurred by me or my family member on the [ski resort] premises [sic]." ¹⁵ The terms "inherent risks" and "premises" were not defined. The court held unanimously that the exculpatory agreement was void as against public policy for two reasons:

"(1) It failed to clearly, unambiguously, and unmistakably explain to him that he was accepting the risk of Hidden Valley's negligence; (2) The form looked at in its entirety failed to alert the signer to the nature and significance of the document being signed." ¹⁶

Note that the court in Yauger (unlike in Richards) does not base its ruling on whether negotiation or bargaining occurred. Fatal to the release was the failure to define vague terms and to make the release conspicuous. In a footnote, the court gave a laundry list of ways the release language could have been made conspicuous, but was not. ¹⁷

Yauger also briefly discusses what analysis should be used in judging the enforceability of exculpatory agreements. Yauger recognizes that some prior cases resolved the enforceability issue on contract grounds, while others resolved the issue on the public policy analysis applied in tort cases. Yauger concludes "public policy is the germane analysis." ¹⁸ This conclusion bodes ill for persons and organizations wishing to rely upon exculpatory agreements because "public policy" is a nebulous concept, which issue usually is not ripe for determination until after a full trial has been held.

There have been some personal injury cases in the last 15 years in which Wisconsin courts have held that exculpatory agreements are enforceable, but these cases are rare. For example, in Trainor v. Aztalan Cycle Club Inc., ¹⁹ a 1988 court of appeals case, an experienced motocross motorcycle racer inspected the track before the event, and complained certain jumps were too steep. The race director replied, "Well, that's motocross," and declined to alter the track. The racer decided to race anyway and signed two releases. The racer acknowledged he signed similar releases many times before (and never read them), but understood that the purpose of the release was to keep him from being able to sue. The court rejected the racer's argument that the release was void because the official was "grossly negligent," and ruled that the release barred the claim because the injury sustained "constituted the type of occurrence contemplated by the releases." ²⁰ Compare this ruling to the Arnold decision, where creative plaintiff's counsel argued that the injury was due not to a normal and foreseeable accident (that is, hitting a wall or another car), but instead was due to an unforeseeable accident (that is, the driver being exposed to toxic chemicals during a "botched" rescue effort). The moral of the Trainor case: Carefully drafted exculpatory agreements, executed under the right circumstances, are enforceable if the accident that occurs is a "normal and foreseeable" accident.

The issue of bargaining

One of the most troublesome issues for organizations seeking to rely on exculpatory agreements is whether the organization should engage in bargaining or negotiation. The 4-3 majority opinion in Richards emphasizes that the supreme court will consider whether the exculpatory agreement was the result of "negotiation and voluntary bargaining." ²¹ In the real world of mass recreational events, it is difficult to understand how such bargaining can be offered practically. For example, should the director of the Milwaukee Lakefront Marathon, faced with a runner who objects to the terms of the standard release, bargain with the runner? Must the director be willing to say: "All right, instead of $25 and a complete release, you can do the race without signing the release if you pay $250 dollars"? And if the "no release" price the director offers is reasonable from the organization's perspective (say $1 million) but unreasonable from the runner's perspective, was the bargaining not in good faith? The problem with a bargaining requirement is the two parties have diametric interests. Given the prices the recreational market will bear (generally low) and the costs the tort system can impose (high and often uncapped), bargaining in such a situation is unlikely ever to be meaningful.

There are, however, some "negotiations" or "options" that a large recreational event may wish to consider. The organization could state in the release that the potential participant has the option of talking to an event director to discuss questions or the release. It is unlikely that many people would take advantage of this option, and it is possible that the changes a participant may want could be acceptable to the event director. The organization should take care that the task of fielding questions go to a knowledgeable event director (preferably a lawyer) and that the contacts be well documented. ²²

The organization also may wish to consider, in conjunction with an insurance company, setting a regular event price and an insured (that is, higher) price, and consider a limited release (say one that caps liability at $10,000 or $100,000) rather than a complete release. The Wisconsin Supreme Court may be more likely to enforce an agreement that, although not perfect, provides some options or some limited remedy to the plaintiff. ²³

Minors and exculpatory agreements

Every parent has been asked to sign releases so his or her child can participate in outings, events or activities. Are such exculpatory agreements enforceable? Because several parties can have claims arising out of a child's injury, the question raises several issues. Specifically:

1. May a parent, by signing a release prior to an event, release the personal injury claims his or her minor child may have later?
2. Does a minor have the capacity to enter into an enforceable exculpatory agreement?
3. May a parent enter into an enforceable exculpatory agreement that releases the claims the parent would have relating to a minor child's death or injury?

Currently, Wisconsin statutory and case law does not yet directly address the above issues. As to the first issue, plaintiffs' counsel could argue that because section 807.01 of the Wisconsin Statutes provides that following an accident a parent may not release a child's personal injury claim without court approval, a parent may not release a child's personal injury claim before an accident. On the other hand, the supreme court has said absent a statutory prohibition of an exculpatory agreement, it will determine the enforceability of such agreements on public policy grounds. The supreme court may decide that the value of recreational activities for minors, when weighed against the social ills that can arise if there is a shortage of such activities, tips the scales in favor of enforcing such releases. ²⁴

As to whether a minor has the capacity to enter into an enforceable exculpatory agreement, plaintiffs' counsel would argue that even if a minor signed a release, such would be voidable because, generally, a minor's contracts for nonnecessities are voidable at the minor's option. ²⁵ The majority of decisions from other jurisdictions have held that exculpatory agreements relating to minors generally are not enforceable. ²⁶ The problem created by this situation - a lack of adults willing to be volunteers for youth activities out of fear of liability - has not gone unnoticed. Recently, Congress passed and the President signed the Volunteer Protection Act of 1997, ²⁷ which provides some protection to volunteers and agencies that provide activities for minors.

As to the third issue, the court of appeals indirectly addressed it in Yauger, and found that the father therein could release his own claims (for the deceased child's medical bills, funeral expenses and the father's loss of consortium claim) and his wife's loss of consortium claim. ²⁸ The supreme court, however, reversed on other grounds and did not directly address the issue. ²⁹ The supreme court's Yauger decision appears to assume, however, that such claims theoretically could be released, if the form used is correctly drafted.

Common sense advice to clients

The first thing attorneys should tell clients who want to rely upon exculpatory agreements is "don't bet the farm" on the enforceability of any exculpatory agreement. This area of the law is still evolving, and the track record before the supreme court for parties seeking to rely on releases has been dismal. Advise clients that they still should exercise reasonable care, even if participants sign exculpatory agreements. Expressly advise clients that the enforcement of such agreements is disfavored, and that it is impossible to draft an enforceable exculpatory agreement that bars absolutely all claims. Finally, advise clients to obtain insurance that covers the organization or event that also covers officers and directors. If no insurance company will touch the organization or event, they either should get into a new line of business or forgo the event. Officers and directors should be aware that if there is no insurance, and the organization obviously is undercapitalized for the foreseeable liabilities it is incurring, officers and directors may be held personally liable.

Conclusion

The supreme court has reaffirmed several times that it does not consider all exculpatory agreements void as a matter of law. Yet its decisions as a whole, especially its most recent decisions, indicate that the court will only grudgingly find such agreements enforceable. The court has set the standard quite high, and attorneys and their clients must act accordingly if they want to create an enforceable exculpatory agreement.

Endnotes

¹ Merten v. Nathan, 108 Wis. 2d 205, 210, 321 N.W.2d 173, 176 (1982).

² Richards v. Richards, 181 Wis. 2d 1007, 1016, 513 N.W.2d 113, 121-22 (1994); see also Merten, 108 Wis. 2d at 212, 321 N.W.2d at 177 (1982).

³ Arnold v. Shawano County Agric. Soc'y, 111 Wis. 2d 203, 209, 330 N.W.2d 773, 777 (1983).

⁴ Yauger v. Skiing Enter. Inc., 206 Wis. 2d 75, 80, 557 N.W.2d 60, 62 (1996).

⁵ Merten, 108 Wis. 2d at 211, 321 N.W.2d at 176.

⁶ Id.

⁷ Arnold, 111 Wis. 2d at 210-11, 330 N.W.2d at 777; Dobratz v. Thomson, 161 Wis. 2d 502, 515, 468 N.W.2d 654, 658-9 (1991); see generally Restatement (Second) of Contracts, § 195 (1979).

⁸ Merten, 108 Wis. 2d 205, 321 N.W.2d 173 (1982).

⁹ Arnold, 111 Wis. 2d 203, 330 N.W.2d 773 (1983). A portion of the supreme court's Arnold decision was withdrawn in a subsequent decision, but the portion of the Arnold decision relating to exculpatory contracts remains good law and is cited frequently. See Green Spring Farm v. Kersten, 136 Wis. 2d 304, 317, 401 N.W.2d 816 (1987); Yauger, 206 Wis. 2d at 80, 557 N.W.2d at 62.

¹⁰ Dobratz, 161 Wis. 2d 502, 468 N.W.2d 654 (1991).

¹¹ Id. at 522, 468 N.W.2d at 661-62 (bracketed material in original text).

¹² Richards, 181 Wis. 2d 1007, 513 N.W.2d 118 (1994).

¹³ Id. at 1011, 513 N.W.2d at 119.

¹⁴ Yauger, 206 Wis. 2d 75, 557 N.W.2d 60 (1996), rev'g, 196 Wis. 2d 485, 538 N.W.2d 834 (Ct. App. 1995).

¹⁵ Id. at 78, 557 N.W.2d at 61.

¹⁶ Id. at 77, 557 N.W.2d at 61.

¹⁷ Id. at 86 n.2, 557 N.W.2d at 64.

¹⁸ Id. at 85, 557 N.W.2d at 64.

¹⁹ Trainor, 147 Wis. 2d 107, 432 N.W.2d626 (Ct. App. 1988), pet. for rev. den. 147 Wis. 2d 889, 436 N.W.2d 30 (1988).

²⁰ Id. at 117, 432 N.W.2d at 630.

²¹ See Richards, 181 Wis. 2d at 1019, 513 N.W.2d at 123. The supreme court's Yauger decision gives only the briefest of mention to the issue of negotiation/bargaining. Yauger, 206 Wis. 2d at 86 n.1, 557 N.W.2d at 64. This may suggest that bargaining/negotiation remains an unrealistic factor for at least some of the justices.

²² Richards, 181 Wis. 2d at 1019, 513 N.W.2d at 123; see also Restatement (Second) of Contracts, § 195 cmt. a ("The rigor of this rule [disfavoring exculpatory agreements] may be mitigated by a fairly bargained for agreement to limit liability to a reasonable agreed value in return for a lower rate.").

²³ Richards at 1019, 513 N.W.2d at 123.

²⁴ See Joseph H. King Jr., Exculpatory Agreements for Volunteers in Youth Activities - The Alternative to "Nerf^®" Tiddlywinks, 53 Ohio St. L.J. 683, 684 (1992).

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