Enforceable 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:
- May a parent, by signing a release prior to an event, release the
personal injury claims his or her minor child may have later?
- Does a minor have the capacity to enter into an enforceable
exculpatory agreement?
- 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
|
Alexander (Sandie) Pendleton is a trial lawyer and shareholder with
Cook & Franke S.C., Milwaukee. He handles recreational injury and
exculpatory agreement cases, among others.
|
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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