Indemnity, Exculpatory and Hold Harmless
Cropped screenshot of title from the trailer for the film Double Indemnity (Photo credit: Wikipedia)
Has this ever happened to you? You are getting ready to race go-karts, rent a truck, scuba dive, or lease a storage unit and the owner hands you a document to sign. Maybe you read over it, maybe you just skim the front page for what you are getting and how much you are paying. If you pay a little more attention, maybe you notice it says you are responsible for any property damage or personal injury and you “hold harmless” the owner. Most likely, you have not truly considered what the possible consequences are of your signature.
Parts of a contract or agreement that take any responsibility from the owner to you are known in the law as indemnity clauses. If you wreck the owner’s go-kart, then you’ll have to pay for it. If you ram your go-kart and hurt somebody else on the track, you and not the owner of the go-karts will pay for it. Most people would agree with that and think it fair, but frequently those clauses try to go far beyond that. For example, I have represented a client who was renting an item from its owner. The owner did not perform inspections on the item as he was supposed to and the item was defective. Not knowing it was defective, my client was severely injured (paralyzed) when it collapsed on him. My client had signed a contract and within that contract was an indemnity clause. However, not only did my client agree that he would be responsible for damage to property or to his own injuries, he did so even if it was the fault of the owner.
Most people would not agree with that if they thought about it. The owner can cause injury to you even if he was at fault, even if he did it intentionally, and you, who had zero fault would have to pay for your own injuries. This far reaching indemnity clause (also called an exculpatory clause) is allowed in North Carolina, but the courts, recognizing that this is an unnatural result, limit these provisions as best they can. In order to be effective, the contract language must be clear and explicit that they are protecting the owner from his own negligent or intentional acts. The courts “strictly construe” the language. Nevertheless, if it is in the contract, the court must uphold it.
There are a few exceptions. An indemnity clause protecting against a party’s own negligence is prohibited by statute for construction contracts. Also, if the activity is extensively regulated to protect the general public from danger, this type of indemnity clause is prohibited. The courts have found this exception in contracts for health care, motorcycle safety training, and cosmetology. Finally, an exception has been found when the parties have unequal bargaining power. This exception usually only applies where the person was not given the opportunity to read the clause. Note that under North Carolina law, if you sign something, legally you are representing that you did read and understand what you signed.
–Bradley A. Coxe is a practicing attorney in Wilmington, NC with Hodges & Coxe PC who specializes in Personal Injury, Medical Malpractice, Homeowner's Associations, Contract and Real Estate disputes and all forms of Civil Litigation. Please contact him at (910) 772-1678.