Practice Pointers For Drafting Exculpatory Clauses

Exculpatory clauses extinguish or limit liability of a potentially culpable party through the use of disclaimer, assumption of risk and indemnification clauses, as well as releases of liability. Florida courts have addressed issues relating to the enforcement of exculpatory clauses where liability arises from personal injury, real estate, construction and commercial disputes. Exculpatory clauses will be enforced as long as the language is clear and unequivocal. These same concepts apply to indemnification agreements, or shift liability for damages to another party, and to releases of liability. On the other hand, exculpatory clauses that extinguish liability for intentional torts or reckless harm would generally be declared null and void.

Florida statutes prohibit the use of exculpatory clauses in certain transactions such as residential lease agreements that disclaim or limit a landlords liability to a tenant for a breach of implied warranty of habitability; condominium documents that disclaim liability for a breach of the statutory implied warranties of fitness and merchantability to a purchaser of a new condominium; agreements that waive the right to assert a construction lien law claim in advance of improving real property; indemnification provisions in construction contracts that encompass claims or damages resulting from gross negligence, willful, wanton or intentional misconduct, or for statutory violations.

Florida law prohibits common carriers such as airline or railroad from extinguishing liability for its own negligence when acting as a common carrier, as opposed to when it engages in private enterprise.

In interpretating these clauses, courts typically will analyze the relative bargaining strength of the parties, especially when the indemnity is a public utility, common carrier, or a provider of an essential public service to a large group of individuals. This analysis is employed to evaluate whether a clause is against public policy. It is noteworthy that public policy considerations will defeat an exculpatory clause if doing so would frustrate a statute or ordinance that has the very purpose of insuring the safety of persons.

The following is a checklist for drafting exculpatory clauses:

1. The exculpatory language of the clause should be bold and conspicuous through the use of larger type, boldface type or a special color.

2. Specify in the document that you are seeking to obtain a releasing for your own negligence and specifically use the word “negligence”.

3. Broadly identify the extent of the risks involved, i.e., it is important to make clear whether the exculpatory language is for all risks that might arise. Otherwise, the clause may be limited to known risks or risks that are inherent in the activity.

4. Specify whether the disclaimer, indemnity provision, or release is for past wrongful acts or future wrongful acts. Courts are more likely to find an exculpatory clause unenforceable as applied to future acts.

5. Specify whose wrongful conduct is being exculpacated, i.e., the indemnitor, the indemnitee or a third party. Courts disfavor these clauses absent clear and unequivocal language expressing the intent of the parties.

6. When feasible, make sure that a person with authority to speak for the organization is available to explain the risks to the other party. This supports the proposition that the clause was the result of the bargaining process reflecting the intention of the parties.

7. Draft the documents to provide an option to the person accepting the risk to elect to acquire more protection by paying additional fees. Often this risk can be insured, especially with professional services.

8. Courts are more inclined to enforce monetary limitations on liability, as opposed to extinguishing liability.

9. The document containing the exculpatory language should be property executed and witnessed. The person executing the document should initial the exculpatory language.

10. A separate release or waiver form should be executed by each individual party to avoid multiple signatures on the same document.

11. In the event a complete release is being furnished without any limitations or exclusions, it should be labeled as “GENERAL RELEASE” or “UNCONDITIONAL AND FULL GENERAL RELEASE” as opposed to “RELEASE”. Releases should include the following elements:

(a) any and all claims;

(b) demands;

(c) damages;

(d) actions;

(e) causes of action;

(f) suits in equity of whatever kind or nature; and

(g) use of the word “negligence” to clarify that releases and exculpatory clause encompasses negligent conduct.

12. Indemnification agreement should include provisions to deal with an arrangement where one party has the duty to defend and hold harmless the other party in litigation. Under these circumstances, the agreement should include a “cooperation clause” requiring the indemnified party to supply documents and arrange for witnesses to be available for consultation as well as for testimony. Additionally, the indemnification agreement should specifically address the rights of the indemnified party to control the litigation arising from the indemnification obligation. These rights include the manner in which a litigated claim will be settled. Additionally, should a third party initiating the litigation seek equitable relief such as an injunction, these allegations may impact other business interests of the indemnified party. Under those circumstances, the indemnified party may elect to represent itself in the proceedings. The indemnification agreement should establish a standard of care applicable to the lawyers assigned to defend an indemnified party. On this point, the agreement should obligate counsel to provide an interim litigation progress report and notification of all hearings. Finally, the agreement should employ procedures for resolving conflicts of interest that may arise during the litigation.

Exculpatory clauses that extinguish or limit liability enable your client to limit risk and avoid liability. However, the failure to appreciate the legal requirements that trigger enforcement of these clauses can spell financial disaster. When the financial stakes are high, these clauses will likely be attacked. Toward that end, valid clauses must be drafted in a clear and unequivocal manner. Furthermore, the clause must disclose the risk being relinquished by the party that has executed the clause. The drafter should be mindful of statutory prohibitions applicable to exculpatory clauses. Florida courts disfavor exculpatory clauses and will declare them invalid should they fail to satisfy applicable legal standards.



Provided as an educational service by John Raymond Dunham, III, Esq..

This publication is intended to serve you. If you would like certain topics covered, or have any questions or comments, you are invited to contact Mr. Dunham at: 941.951.1800, Ext. 250, Facsimile: 941.366.1603, E-Mail: jrd@jrdlaw.com, Web site: www.jrdlaw.com or write him at LUTZ, BOBO, TELFAIR, DUNHAM & GABEL, Two North Tamiami Trail, SARASOTA, FLORIDA 34236.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered and report on issues and developments in the law. It is not intended as legal advice, and should not be relied upon without consulting an attorney.