Topic:
CONSTRUCTION INDUSTRIES; NEGLIGENCE; LEGISLATION; CONTRACTS; LIABILITY (LAW);
Location:
CONSTRUCTION CONTRACTS; LIABILITY, LEGAL;
Scope:
Court Cases;

OLR Research Report


April 26, 2000

 

2000-R-0514

INDEMNIFICATION AGREEMENTS-VALIDITY IN OTHER STATES

By: George Coppolo, Chief Attorney

You asked whether other states uphold contract provisions indemnifying a person for his own negligence. Your question arises in connection with HB 5827, File 455, An Act Concerning Indemnification Provisions Void as Against Public Policy.

SUMMARY

Many states, including Connecticut, have statutes that prohibit agreements that indemnify or hold harmless someone for his own negligence in connection with construction contracts. A few states have laws that prohibit these agreements in connection with residential leases. But we were unable to find any states with statutes prohibiting these agreements across the board.

In the absence of a controlling statute, courts in the other states have developed their own common law rules regarding the validity of these agreements. The prevailing modern view upholds indemnity or hold harmless agreements that exempt a person from ordinary negligence unless they negatively affect or involve a public interest, or public duty.

In deciding whether or not an agreement negatively affects a public interest or public duty, courts typically look at such things as whether the transaction involves a type of business generally suitable for public regulation, whether the person seeking liability protection performs an important public service which some members of the public need, and whether the person seeking protection holds himself out as willing to perform the service for anyone who wants it.

Although courts use similar standards, they do not necessarily reach similar conclusions as to whether a public interest or duty is adversely affected. For example, the Wyoming Supreme Court upheld a hold harmless agreement protecting a ski resort that sponsored a competition, but the Vermont Supreme Court recently refused to uphold an agreement releasing a ski resort from liability for negligence.

We have included cases dealing with exculpatory clauses in this report. An exculpatory clause is one that concerns the risk of harm sustained by one person that might be caused by another person and which releases the responsible person from liability for certain future acts of negligence.

It is similar to, but not the same as, an indemnity clause. An indemnity clause concerns third persons (people not a party to the agreement), and covers the risk of harm they sustain due to a party's negligence. It shifts the financial burden for the ultimate payment of damages. The terms “indemnity” and “hold harmless” are often used interchangeably.

COMMON LAW RULES IN OTHER STATES

A majority of jurisdictions have rejected the old view that indemnity or hold harmless clauses that protect people from their own negligence are unenforceable because they are against public policy. (Manson-Osberg Company v. State, 552 P2d 654 (1976)). This may be because of the widespread use of insurance as a means of allocating risk. But there are instances when courts will not enforce such clauses. These are cases where the indemnity clause tends to promote a breach of duty owed to the public.

Indemnity provisions designed to protect people against the consequences of their own negligence encounter significant scrutiny and are viewed with great disfavor. The scrutiny results from the possibility that the protected person will act with less caution because of the indemnification protection and thus, third parties will be subject to more dangerous conditions. Courts often construe general indemnity provisions as granting protection to people only from damages caused by their “passive negligence.” Passive negligence is usually defined as mere nonfeascances, such as failing to discover a dangerous condition or to perform a duty imposed by law (see Rossmoon Sanitation, Inc. v. Pylar, Inc. 532, P2d 97, 100 (Cal 1975) “Active negligence,” on the other hand, occurs when someone has personally participated in an affirmative act of negligence, known about or acquiescesed in negligent acts, or failed to perform a precise duty which he agreed to perform. (Rossmoon 532 P2d at 101).

Another example of this type of decision is Amoco Prod. Co. v. Forest Oil Corp., 844 Fed 251, 255 (5th Cir 1988) where the court construed an indemnification agreement that protects against “all claims” as not including claims resulting from the protected person's own negligence.

Public Interest or Duty

Courts often reject indemnity or hold harmless agreements that negatively affect a public interest or involve a public duty. In a leading decision, the California Supreme Court held that parties engaged in performing a service of great importance to the public may not shield themselves from liability through indemnity provisions (Tunkel v. Regents of University of California 383 P2d 441, 445 (1963)).

Tunkel sued for damages allegedly caused by negligent medical treatment by two UCLA Medical Center doctors. As a condition of his admission, Tunkel had to sign a form releasing the hospital from liability for its employees' negligence. In its ruling, the court identified six specific questions that courts should consider when deciding whether public policy and the public interest will not allow a party to relieve itself of liability.

1. Does the transaction involve a type of business generally thought suitable for public regulation?

2. Does the person seeking indemnification perform a very important public service which some members of the public need?

3. Does the person seeking indemnification hold himself out as willing to perform this service for anyone who wants it, or at least for anyone coming within certain established standards?

4. Does the person seeking indemnification have a decisive bargaining power advantage against any member of the public seeking his services because of the nature of the service and the economic setting of the transaction?

5. Are members of the public presented with a standardized form of contract with no provision for paying additional reasonable fees to obtain protection against negligence?

6. As a result of a transaction, is a purchaser's physical safety or property placed under a seller's contract?

The court concluded that under these circumstances, the person releasing another person from the consequences of that other person's own negligence does not really do so voluntarily. In the Tunkel case, the court found that the release violated all six tests. But the court specified it is not necessary for all six to be violated in order for a clause to be invalidated.

California courts have applied Tunkel in a number of different circumstances. In one case, a court held that swimming did not involve a public interest and thus, public policy did not require invalidating a release that a swimmer signed when she enrolled in a swimming class at an athletic club (Randas v. YMCA of Metropolitan Los Angeles, 17 Cal. App. 4th 158 (1993)). A sky diver's express release of the operator of the sky diving service from liability for negligence was binding and valid on the skydiver and his heirs (Paralift, Inc. v. Supreme Court, 23 Cal. App. 4th 748 (1993)). California courts have also upheld a release signed by a scuba diving student (Madison v. Superior Court, 203 Cal. App. 3d 589 (1988)) and a provision requiring a subcontractor to indemnify a contractor against the contractor's negligence (Baldwin Contracting Co. v. Winstar Steel Works, Inc., 236 Cal. App. 2d 565 (1965)).

Numerous courts in other states have adopted and applied the Tunkel test. For example, the Washington Supreme Court held that a school district's release for interscholastic athletics violated public policy (Wagenblast v. Odessa Sch. Dist. No 105-157-1665, 758 P2d 968 (1998)). And the West Virginia Supreme Court invalidated a release for a state university-sponsored rugby club. (Kyriazis v. University of W. VA., 450 S.E. 2d 649 (1994)).

Other courts have incorporated Tunkel factors to one degree or another into their decisions. For example, the Colorado Supreme Court has developed a four-part inquiry to analyze the validity of exculpatory clauses: (1) the existence of a public duty, (2) the nature of the service performed, (3) whether the contract was fairly entered into, and (4) whether the parties intentions were expressed clearly and unambiguously (Jones v. Dressel, 623 P2d 370 (Colo. 1981)). In Jones the court held that no public duty was involved in air service for a parachute jump. Using a similar formula, the Wyoming Supreme Court held a ski resort's sponsorship of an ironman decathalon competition did not involve a public interest (Milligan v. Big Valley Corp., 754 P2d 1063 (1988)). But, the Virginia Supreme Court recently held that a release from liability for future negligence in the context of a Teflon man triathalon is void on public policy grounds because it is wrong to put one party to a contract at the mercy of the other's negligence (Hiett v. Lake Barcroft Community Ass'n, 418 S.E 2d 894 (1992)).

In a recent case, the Vermont Supreme Court held that an exculpatory agreement releasing a ski resort from all liability for negligence was void as contrary to public policy (Dalury v. S-K-I, L-I-D, 670, A2d 795 (1995)). The court acknowledged that skiing was not an essential public service, but it concluded there was a legitimate public interest. First, the court noted that the facility was open to the public and that it invited skiers and nonskiers of every level of skiing ability for the price of a ticket. Second, it pointed to the fact that a substantial number of sales take place as a result of the seller's general invitation to the public to use its facilities.

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