Exculpatory Clause: Everything You Need to Know
An exculpatory clause is a term of a contract that grants one party relief from liability if there are any damages caused during a performance of a contract. This applies in a variety of situations or events. 3 min read
An exculpatory clause is a term of a contract that grants one party relief from liability if there are any damages caused during a performance of a contract. This applies in a variety of situations or events.
What Does It Mean to Have an Exculpatory Clause in a Contract?
In general, the party that includes the exculpatory clause as part of the contract is the party that seeks to have relief from the potential for liability. One example of an exculpatory clause in a contract is a ticket for a show that states on its face that the venue is not liable for any personal injuries caused by their employees throughout the course of the show.
In most states, there are laws that make exculpatory clauses in rental agreements unenforceable in a court of law. While there are many other instances where exculpatory clauses are upheld, it is always an option for the harmed party to challenge the clause if the party feels it is unfair. It is possible for the court to overturn the clause.
Exculpatory Clauses Enforceable in Court?
Generally speaking, yes, exculpatory clauses are enforceable in court as long as they are reasonable. Courts will find that these clauses are not valid if the court determines that the exculpatory clause is unconscionable.
The main reason that a court may rule that an exculpatory clause is unenforceable is if the court determines that the clause was unreasonable given the specific circumstances and facts of the case. The clause is found unreasonable if both parties to the contract lack equal bargaining power. Courts have also held that these clauses are unreasonable where the clause completely excludes any liability on one party for negligence. In addition, courts do not allow a party to excuse all liability for harm caused in a reckless or intentional manner.
The courts typically consider several different factors when they are choosing whether or not an exculpatory clause in a contract is actually enforceable. The following factors tend to increase the odds that a court will find an exculpatory clause enforceable:
- The clause is obvious to the reader, with terms in capital letters, different colors, or bolded language
- The wording of the clause is simple and easy to understand, in such a way that the average person would understand exactly what the clause is binding them to
- The wording of the clause should use specific terms, including terms involving liability, such as the use of the word “negligence.”
What Makes an Exculpatory Clause Unenforceable?
There are five main ways in which an exculpatory clause is determined unenforceable. These include:
Ambiguity - Since the courts require an exculpatory clause to state clearly the specific rights which a person agreeing to the clause has waived, any language that is ambiguous will not suffice in court to allow the clause to stand.
Deliberate acts – Courts generally find that a just a simple mistake is insufficient in order to completely invalidate an exculpatory clause; however, deliberate actions and gross negligence may suffice to uphold the clause.
Fraud – With a clause deemed unenforceable due to fraud, the court must find that the party falsified a material fact also intended to deceive, along with the other party, as a reasonable person, having relied upon the falsification and that this reliance caused the harmed party to suffer damages.
Contrary to public interest – The courts typically applied the public policy test when weighing the factors to determine whether an exculpatory clause before them is actually enforceable. This test weighs the bargaining power between both parties and also consider whether a company was providing necessary public services (such as a hospital) to the extent that the clause enforcement occurs for the good of public interest.
Total absolution of liability—Some courts have held that where there is a broad clause that states very generally that a company cannot be found liable for any damages of any kind, that such a clause cannot be enforced since it is without any limitation. However, it is important to note that both state courts and federal courts vary in their rulings interpreting this issue.
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