Restat 2d of Contracts, § 195

• Restatement of the Law, Second, Contracts
• Chapter 8- Unenforceability on Grounds of Public Policy
• Topic 4- Interference with Other Protected Interests
• § 195 Term Exempting From Liability for Harm Caused Intentionally, Recklessly or Negligently

(1)  A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.
(2)  A term exempting a party from tort liability for harm caused negligently is unenforceable on grounds of public policy if

(a)  the term exempts an employer from liability to an employee for injury in the course of his employment;

(b)  the term exempts one charged with a duty of public service from liability to one to whom that duty is owed for compensation for breach of that duty, or

(c)  the other party is similarly a member of a class protected against the class to which the first party belongs.
(3)  A term exempting a seller of a product from his special tort liability for physical harm to a user or consumer is unenforceable on grounds of public policy unless the term is fairly bargained for and is consistent with the policy underlying that liability.

Comment:

a.  Rationale.  The law of torts imposes standards of conduct for the protection of others against unreasonable risk of harm. One cannot exempt himself from such liability for harm that is caused either intentionally or recklessly. See Restatement, Second, Torts § 500. (As to the possibility that one party's consent may give the other a defense under the law of torts, see Restatement, Second, Torts §§ 892-92D.) However, a party to a contract can ordinarily exempt himself from liability for harm caused by his failure to observe the standard of reasonable care imposed by the law of negligence. See Restatement, Second, Torts § 282. This rule is subject to an exception if the other party is a member of a protected class. Two examples of this exception are widely recognized. First, an employer is not permitted to exempt himself from liability to his employee for negligently caused injury (paragraph (a)). Second, one who is charged with a duty of public service, such as a common carrier or a public utility, and who undertakes to perform it for compensation, is not permitted to exempt himself from liability to the one to be served for negligent breach of that duty (paragraph (b)). The rigor of this rule may, however, be mitigated by a fairly bargained for agreement to limit liability to a reasonable agreed value in return for a lower rate. In most jurisdictions legislation has altered the rule in specific situations, usually by restricting the power to limit liability. The two examples given under Subsection (2) are not intended as an exhaustive list of situations in which such terms are unenforceable. If, for example, a statute imposes a standard of conduct, a court may decide on the basis of an analysis of the statute, that a term exempting a party from liability for failure to conform to that standard is unenforceable. See § 179(a).

Illustrations:

1. A, a common carrier, issues a pass to B, one of its employees. A term of the pass exempts A from liability to B for any injury caused by A's negligence. The term is unenforceable on grounds of public policy. Enforcement of a similar term in a pass given gratuitously to one who is not an employee would not be precluded on those grounds.

2. A term in an agreement between A, a railroad, and B, an adjacent land owner, exempts A from liability to B for fires negligently caused by sparks from its engines. Because the term does not exempt A from liability for breach of its duty of public service, its enforcement is not precluded on grounds of public policy. The term would be unenforceable on those grounds if it exempted A from liability for harm caused either willfully, intentionally or recklessly.

b.  Relation to other rules.  Language inserted by a party in an agreement for the purpose of exempting him from liability for negligent conduct is scrutinized with particular care and a court may require specific and conspicuous reference to negligence under the general principle that language is interpreted against the draftsman. See § 206. Furthermore, a party's attempt to exempt himself from liability for negligent conduct may fail as unconscionable. See § 208. The rule stated in this Section does not apply to an agreement by a third person to indemnify a party against liability in tort. The effect of a term purporting to exempt a party from the consequences of a misrepresentation is governed by the rule stated in § 196.

c.  Strict product liability.  One who sells a product in a defective condition unreasonably dangerous to the user or consumer or to his property is subjected to liability for resulting physical harm under the rule stated in Restatement, Second, Torts § 402A. In general, a term exempting the seller from this liability is unenforceable on grounds of public policy. See Comment m to Restatement, Second, Torts § 402A. Subsection (3) states an exception for the rare situation in which the term is consistent with the policy underlying the liability. This might be the case, for example, for a term in a fairly negotiated contract between two merchants for the sale of an experimental product. Such a term would not, however, affect the rights of one who was not a party to the contract.

This Section is based on former §§ 574, 575. See 6A Corbin, Contracts § 1472 (1962 & Supp. 1980); 15 Williston, Contracts §§ 1750-51 (3d ed. 1972).

Comment a.  Illustration 1 is based on Illustration 1 to former § 575. Illustration 2 is based on Illustration 2 to former § 575; cf. Rutter v. Arlington Park Jockey Club, 510 F.2d 1065 (7th Cir. 1975); Lamoille Grain Co. v. St. Johnsbury and Lamoille County R.R., 135 Vt. 5, 369 A.2d 1389 (1976); compare Alabama Great So. R.R. v. Sumter Plywood Corp., 359 So.2d 1140 (Ala. 1978). See also Meyerow, Exculpatory Provisions in Leases of Commercial Property -- A Realistic Appraisal, 13 New England L. Rev. 739 (1978). As to exemption from liability for failure to observe a statutory duty imposed for the protection of human life, see Warren City Lines v. United Ref. Co., 220 Pa. Super. Ct. 308, 287 A.2d 149 (1971). For examples of legislative modification of the common law rules, see Carriage of Goods by Sea Act, 46 U.S.C. § 1304 (1976); Interstate Commerce Act, 49 U.S.C. §§ 20(11), 1502 Note (1976); Lopez v. A/S D/S Svendborg, 581 F.2d 319 (2d Cir. 1978); Comment, 47 Fordham L. Rev. 323 (1978).

The rule forbidding terms exempting parties from harm caused intentionally is illustrated by Zuckerman-Vernon Corp. v. Rosen, 361 So.2d 804 (Fla. Dist. Ct. App. 1978). The contrary general rule permitting such clauses as to negligence is stated in LaFrenz v. Lake County Fair Bd., 172 Ind. App. 389, 360 N.E.2d 605 (1977); and Jones v. Dressel, 582 P.2d 1057 (Colo. App. 1978). However, some states forbid exculpatory clauses against a party's own negligence, see, e.g., Alabama Great So. R.R. v. Sumter Plywood Corp., supra; and Agricultural Serv. Ass'n v. Ferry-Morse Seed Co., 551 F.2d 1057 (6th Cir. 1977) (applying Cal. Civ. Code § 1668 (West 1973)). Other courts, applying the general rule as to negligence, state that such exculpatory clauses will be strictly construed against the party relying on them, see, e.g., Belger Cartage Service v. Holland Constr. Co., 224 Kan. 320, 582 P.2d 1111 (1978); J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540 (Del. Super. Ct. 1977), app. dism'd, 377 A.2d 1 (Del. 1977). Compare Tunkl v. Regents of Univ. of California, 60 Cal.2d 92, 32 Cal. Rptr. 33, 383 P.2d 441 (1963). Some courts will not interpret an exculpatory clause to include a party's own negligence unless the word "negligence" is used verbatim. See, e.g., J.A. Jones Constr. Co. v. City of Dover, supra; Della Corte v. Incorporated Village of Williston, 60 A.D.2d 639, 400 N.Y.S.2d 357 (1977). Compare Marr Enterprises v. Lewis Refrig. Co., 556 F.2d 951 (9th Cir. 1977); Zimmer v. Mitchell and Ness, 253 Pa. Super. Ct. 474, 385 A.2d 437 (1978). Courts are more likely to uphold clauses exculpating negligence when a voluntary dangerous activity such as sports is involved than when a less voluntary activity such as a medical procedure is involved. Compare Zimmer v. Mitchell and Ness, supra (skiing); and LaFrenz v. Lake County Fair Bd., supra (automobile racing), with Olson v. Molzen, 558 S.W.2d 429 (Tenn. 1977) (abortion); and Leidy v. Deseret Enterprises, 252 Pa. Super. Ct. 162, 381 A.2d 164 (1977) (post-operative physical therapy).

For two lower court opinions refusing to relieve public utilities from liability for negligence despite tariffs approved by a regulatory commission, see Denmark v. New York Tel. Co., 97 Misc.2d 205, 411 N.Y.S.2d 506 (1978); Lee v. Consolidated Edison Co., 95 Misc.2d 120, 407 N.Y.S.2d 777 (1978).

Comment b.  On the specificity of language required, see, in addition to the cases cited on this point in the Reporter's Note to Comment a, Lincoln Pulp & Paper Co. v. Dravo Corp., 436 F. Supp. 262 (D. Maine 1977); id., 445 F. Supp. 507 (D. Maine 1977); Orkin Exterminating Co. v. Montagano, 359 So.2d 512 (Fla. Dist. Ct. App. 1978). The three opinions cited in this paragraph also rely on the rule of interpretation against the clause's draftsman. With respect to unconscionability, compare Louisville Bear Safety Serv. v. South Central Bell Tel. Co., 571 S.W.2d 438 (Ky. 1978); and Berjian v. Ohio Bell Tel. Co., 54 Ohio St.2d 147, 375 N.E.2d 410 (1978), with Allen v. Michigan Bell Tel. Co., 18 Mich. App. 632, 171 N.W.2d 689 (1969). See also Posttape Assoc. v. Eastman Kodak Co., 450 F. Supp. 407 (E.D. Pa. 1978); id., 537 F.2d 751 (3d Cir. 1976); LaFrenz v. Lake County Fair Bd., 172 Ind. App. 389, 360 N.E.2d 605 (1977); Note, Fairness, Flexibility and the Waiver of Remedial Rights by Contract, 87 Yale L.J. 1057 (1978).

Comment c.  The exception in Subsection (2) is supported by Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974); see also Wheeler v. Standard Tool and Mfg. Co., 497 F.2d 897 (2d Cir. 1974). But cf. Sterner Aero v. Page Airmotive, 499 F.2d 709 (10th Cir. 1974).

ALR Annotations:

Validity and construction of "No Damage" Clause with respect to delay in building or construction contract. 74 A.L.R.3d 187.
Validity and construction of contract exempting agricultural fair or similar bailee from liability for articles delivered for exhibition. 69 A.L.R.3d 1025.
Validity and construction of contract exempting hospital or doctor from liability for negligence to patient. 6 A.L.R.3d 704.
Conditions printed on confirmation slips as binding on customers of stock or commodity broker. 71 A.L.R.2d 1089.
Validity, construction, and effect of limited liability or stipulated damages clause in fire or burglar alarm service contract. 42 A.L.R.2d 591.

Digest System Key Numbers:

Contracts 114