Vol. 70, No. 11, November
1997
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
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