Tag Archives: exculpatory

APPRECIATE THE RISKS YOU ARE ASSUMING IN YOUR CONTRACT

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APPRECIATE THE RISKS YOU ARE ASSUMING IN YOUR CONTRACT.   Otherwise, those risks will come back and bite you in the butt.  This language is not capitalized for naught.  Regardless of the type of contract you are entering into, there are risks you will be assuming.  You need to appreciate those risks because there may be insurance you can obtain to cover that risk.

For instance, exculpatory provisions (or get-out-of-jail provisions) in contracts are enforceable if they are unambiguous.  “Such provisions are deemed to be unambiguous and enforceable when the language unequivocally demonstrates a clear and understandable intention for the defendant to be relieved from liability such that an ordinary and knowledgeable person will know what he or she is contracting away.”  Pillay v. Public Storage, Inc., 44 Fla.L.Weekly D2744c (Fla. 4th DCA 2019).

An example of an exculpatory provision can be found in the public storage rental contract found in Pillay that read:

(1) ALL PERSONAL PROPERTY IS STORED BY OCCUPANT AT OCCUPANT’S SOLE RISK.

(2) Owner and Owner’s agents . . . will not be responsible for, and Tenant releases Owner and Owner’s agents from any responsibility for, any loss, liability, claim, expense, damage to property . . . including without limitation any Loss arising from the active or passive acts, omission or negligence of Owner or Owner’s agents.

(3) Tenant has inspected the Premises and the Property and hereby acknowledges and agrees that Owner does not represent or guarantee the safety or security of the Premises or the Property or any of the personal property stored therein, and this Rental Agreement does not create any contractual obligation for Owner to increase or maintain such safety or security.

In this case, a tenant renting storage space sued his landlord because his rental space was burglarized and damaged.  The tenant claimed the landlord failed to safeguard his property.  But…take a look at the exculpatory provision in the tenant’s rental agreement.  The tenant assumed this very risk and relieved the landlord from liability for this risk.  “By the express terms of the rental agreement, [the landlord] had no duty to safeguard [tenant’s] storage units.”  Pillay, supra.  There was likely insurance the tenant could have obtained, but elected not to, that would have covered this risk.  The point, however, is that the tenant assumed a risk by virtue of an exculpatory provision that he did not appreciate and that risk came back to bite him in the butt!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONSIDER THE RISKS ASSOCIATED WITH AN EXCULPATORY CLAUSE

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An exculpatory clause in a contract is a clause aimed at relieving another party from certain liability. A disclaimer and insulation from liability.   Obviously, if you are the party relieving the other party from liability, you want to consider this risk including the potential enforceability of this risk if something goes wrong.  If you are the party asking for the insulation from liability, you do not want to create an exculpatory provision that disclaims and insulates you of all liability arising from the contract as it may create an illusory effect – that the agreement is nothing but a naked promise on your end because your promise is fully disclaimed and you are insulated from liability if you break your promise.  This could result in an unenforceable contract.

 

The validity of such an exculpatory clause was at-issue in Pier 1 Cruise Experts v. Revelex Corp., 2019 WL 3024618 (11thCir. 2019).   Although not a construction dispute, the exculpatory clause in this case was with two fairly sophisticated parties and expressly insulated one of the contracting parties from “any…damages regardless of kind or type…whether in contract, tort (including negligence), or otherwise.”  Pier 1 Cruise Experts, 2019 WL at *7.   This is a powerful exculpatory clause because it could be broadly construed to insulate that party from its own breaches of the contract.

In Florida:

[A]n exculpatory clause is enforceable so long as (1) the contracting parties have equal bargaining power and (2) the clause’s provisions are clear and unambiguous. With respect to the latter requirement, ‘the intention to be relieved from liability [must be] made clear and unequivocal and the wording must be so clear and understandable that an ordinary and knowledgeable person will know what he is contracting away.”  In the same vein, exculpatory clauses are ‘strictly construed against the party seeking to be relieved of liability.’

Pier 1 Cruise Experts, 2019 WL at *7 (internal citations omitted).

Here, the exculpatory clause was clear and was entered into with parties that had equal bargaining power.  The issue turned on the enforceability under Florida law and how the clause should be construed.

One interpretation is that the clause is enforceable and fully bars all of the parties’ claims against the other party that received this immunity from liability.  Period.

Another interpretation is that because of the broad sweeping application of the clause, it renders the entire contract illusory and void ab initio (i.e., void from the beginning).

A final interpretation could be that the clause will be construed to bar all negligence claims, but not breach of contract claims as it is the insulation from breach of contract claims that creates the illusory nature of the contract.

The Eleventh Circuit Court of Appeal certified this issue to the Florida Supreme Court with the following questions:

Is a contractual ‘exculpatory clause’ that purports to insulate one of the signatories from ‘any…damages regardless of kind or type…whether in contract, tort (including negligence), or otherwise’ enforceable?  Or, alternatively, does the clause confer such sweeping immunity that it renders the entire contract in which it appears illusory?  Or, finally, might the clause plausibly be construed so as to bar some but not all claims and thus save the contract from invalidation?

Pier 1 Cruise Experts, 2019 WL at *12.

Any answer to these questions can have worthy implications.  Notwithstanding, you need to consider that the intent of a clear exculpatory clause is to relieve and insulate another party from liability and that party will rely on the clause if a potential issue or claim arises.  The clause operates as a full disclaimer of sort.  Consider the enforceability of the provision and clearly negotiate the parameters of the provision and appreciate any corresponding risk associated with the provision.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.