Why the Exculpatory Clause Must Be the Clearest Provision in Your Contract

A neurosurgeon had a patient sign an agreement that stated the doctor no longer carried malpractice insurance, which the patient understood and therefore agreed the doctor would assume no liability.

The doctor intended it as an exculpatory release. The trial court held the exculpatory clause valid and dismissed. On appeal that order was reversed; the exculpatory clause was not sufficient as written to be enforced.

If you’re reading this, most likely you are not a neurosurgeon who decided to go into the alarm business. Hopefully, you’re not as stupid as this neurosurgeon or the attorney he used, if he had one, to draft his exculpatory clause.

You need an exculpatory clause in your alarm, security or fire contracts. Unlike the neurosurgeon who might get sued if the surgery goes wrong, you install security or fire systems and you can get sued no matter who caused that fire or the environmental condition that went undetected or failed to prevent unauthorized intrusion or access to restricted or private areas, all causing harm to person or property.

Some subscribers are stupid enough to think you are their first and only line of defense against such situations, their insurance company or deep pocket to cover their losses and unfortunately some judges agree with that twisted logic.

The exculpatory clause needs to be the clearest provision in your contract, stating that you are not going to be liable for any losses suffered by the subscriber, for any reason, period. It’s not the only provision you will rely on, but it’s the start of more provisions to come in the agreement.

Your contracts need to be written with precision. You should not draft your own contracts. Your lawyer better be top notch and specialize in drafting alarm contracts.

Here’s what this appeals court had to say about enforcement of the exculpatory clause:

An exculpatory clause purports to deny an injured party the right to recover damages from the person negligently causing his injury. Exculpatory clauses are disfavored in the law because they relieve one party of the obligation to use due care and shift the risk of injury to the party who is probably least equipped to take the necessary precautions to avoid injury and bear the risk of loss. Further, such clauses will be strictly construed against the party claiming to be relieved of liability. Such clauses are enforceable only where and to the extent that the intention to be relieved was made clear and unequivocal in the contract, and the wording must be so clear and understandable that an ordinary and knowledgeable party will know what he is contracting away.

Let’s have a look at what the neurosurgeon had in his contract, a form he was so confident using he gave up his malpractice insurance and continued operating on people: “As of January 1, 2003, Dr. Michael D. Paul, and the professional corporation of MacMillan, Paul and Burkarth, P.A., also known as Treasure Coast Neurosurgery, will not carry any medical malpractice insurance. Being of sound mind and sound body, I hereby acknowledge this fact and agree not to sue Dr. Michael D. Paul, or the professional corporation of MacMillan Paul and Burkarth, P.A. for any reason. My reason for doing this is that I realize that Dr. Michael D. Paul and his staff will do the very best to take care of me according to community medical standards.”

Now in all fairness, the trial judge bought it. The trial court entered summary judgment in favor of the defendants, finding the release to be “completely unambiguous” in releasing claims of negligence.

But the appeals court reversed after reviewing other cases where exculpatory clauses were enforced or not enforced:

Here, the purported release is rife with ambiguity and uncertainty. The exculpatory provision appears in smaller font below a statutory notice regarding the doctor’s decision not to carry malpractice insurance. The provision is not thorough or detailed. It does not expressly release any particular type of claims and it comprises three sentences which, read together, are contradictory … Based on the foregoing, we reverse and remand for further proceedings.

If the court is reviewing the terminology used in your agreement for the exculpatory clause (or other provisions), then that’s your fault. There should be no confusion or reason for interpretation.

If the court is reviewing the terminology used in the exculpatory clause or rest of the contract to decide if it will enforce those provisions, as a matter of law, then you can’t help that, though you can try and come up with other provisions that will be enforced and protect you from liability.

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