Daily Development for
Monday, March 16, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

CONTRACTS; EXCULPATORY CLAUSES; STRICT LIABILITY: An exculpatory clause that purports to insulate a party from liability for activities that might otherwise subject the party to claims for strict liability is enforceable where (i) there was no disparity of bargaining power; (ii) the agreement does not involve a public or essential service; (iii) the agreement seeks to exonerate the benefited party from liability for property damage incurred by the other party and not from liability for injuries to members of the public; and (iv) all known hidden risks have been disclosed; and (v) the exculpatory clause does not shield the benefitted party from liability for intentional, willful, or wanton acts .

Arrowhead Electric Coop., Inc. v. LTV Steel Mining Co., 568 N.W.2d 875 (Minn. Ct. App. 1997).

The case concerned an agreement between the plaintiff electric coop and LTV through which the coop obtained from LTV the right ot establish an electric substation downhill from land on which LTV had established an enormous "ash heap" of leavings from various refining processes. In a situation that one could only describe as "grody," the ash heap, which covered over 27 acres, became saturated with water and underwent a "static liquification" - all turned to mud at once - and slid down the hill, causing over $500,000 to plaintiff's electrical substation. Must have been quite a sight!

At this procedural stage, the parties assumed that the maintenance of the ash heap was an activity as to which the state could apply strict liability for operation of an ultra hazardous activity. The contract contained a general exculpatory clause relieving LTV from any liability for injury caused by this activity, but the clause did not specifically mention liability based on the theory of ultra hazardous activity.

The court held that the exculpatory clause, if it met the standards set forth in the caption above, would provide protection from liability for ultra hazardous activities. The court went on, however, to conclude that there was an issue of fact as to whether the events triggering the mudslide here showed "wellful or wanton" behavior by the LTV, liability for which would not be avoided by the clause. .

Comment 1: This is a useful citation in a touchy area. The question of whether clauses exculpating a party from negligence for strict liability violates public policy is still an open one in this era of "good faith and fair dealing." Here the court goes even farther and permits the parties to contract around liability that arguably is imposed even more clearly on public policy grounds.

Comment 2: It is worth noting that, despite the generous ruling on the exculpatory clause, the court ruled that the plaintiff could go forward on its claim that the defendant's conduct in the method by which it maintained a large ash heap might be "willful or wanton" despite the fact that its practices had been approved by the state environmental protection agency.

Comment 3: Of course this clause should have been upheld. It's no more than the allocation of the cost of acquiring insurance. The plaintiff was in the best position to acquire insurance of its own facilities, and, if there was a danger being downhill from the ash heap, the plaintiff and its insurer should have been able to identify that risk and insure against it.

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