How courts are eroding exculpatory clauses and what you can do about it.

file5581281481565A review of case law over the past thirty years shows that in much of the country there has been an erosion in the enforceability of exculpatory clauses and subrogation waivers.  In states where such clauses were once routinely upheld, and cases dismissed before trial, now courts are holding that the clauses are unenforceable or that their enforceability is a question for a jury, forcing companies to take cases to trial, which is expensive and sometimes risky; or forcing companies to settle, which takes out the risk and expense of trial, but is also expensive and unfair when you’re not at fault.    

Courts have accomplished this erosion through new definitions of what it means for behavior to be considered willful and wanton or grossly negligent.  In one recent case, a court redefined what willful and wanton negligence means, essentially equating it to nothing more than negligence if a person knows someone is in peril and does not act.  This arguably means that, in that state, exculpatory clauses are unenforceable where an alarm company receives a signal but doesn’t respond appropriately, even if its failure to respond was purely an accident.

Other courts have eroded exculpatory clauses by holding that they only apply to harm that was foreseeable given the activity involved.  In one incredulous case, a court held that a recreational swimming pool’s waiver of liability was unenforceable in a lawsuit brought by a drowning victim’s family because drowning was not a foreseeable harm of swimming.  Given all the ways an alarm customer could experience a loss, it is easy to see that whether it is foreseeable is ripe for debate.

Still other courts have strained the bounds of causation to find alarm companies liable for losses.  In order to be held liable for damages, your actions must have caused the damage.  Several older alarm liability cases found that because the alarm company did not create the loss it could not be held liable for it.   After all, it wasn’t the alarm company that caused the furnace to fail, which caused the pipes to break in the winter; nor was it the alarm company that broke into the business and stole all the merchandise.   So it would not be fair to say that the alarm company caused the loss.   Now, however, alarm companies are routinely held responsible for losses they didn’t create.

So, what can you do to protect your business?

Make sure your contract is air-tight.  Your contract is a document that it is easy to get and forget but do not make that mistake.  It will take time and money, but it should be reviewed yearly by an attorney.

While the court may not enforce your contract based on its whim, it will never enforce it if it does not comply with your state’s law.  And, given that case law changes all the time,  if you haven’t reviewed your contract recently, you probably are not up to date with your state’s law.  Likewise, if you are buying cookie-cutter contracts, you are probably not protected as well as you should be.  The law is not uniform throughout the country as to what wording can and cannot be used, font and size of the clauses, and placement in the contract.  You need a contract drafted to reflect the law in your state.

Another piece of advice:  avoid bad facts.  Easier said than done; and mistakes will inevitably be made.  But be sure to instill in your employees the need for excellence and honesty and implement the best business practices you can to ensure that if something goes wrong and you are sued, you can come to court knowing you did your best and you have it all documented in writing.

Finally, it is critically important that you get involved in the effort to defend the use of exculpatory clauses and to clarify the scope of their enforceability.  Keep abreast of proposed legislation in your state and write your legislators when necessary.


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