Tennessee Supreme Court Defines Factors For Enforcing Exculpatory Agreements

Where a medical transportation company had a patient sign an exculpatory agreement (commonly called “waiver forms”), the Supreme Court held that the agreement was not enforceable because of the “unequal bargaining power of the parties, the overly broad and unclear language of the agreement, and the important public interest implicated by the agreement.”

In Copeland v. HealthSouth/Methodist Rehabilitation Hospital, LP, No. W2016-02499-SC-R11-CV (Dec. 20, 2018), plaintiff was a patient at an in-patient rehabilitation hospital after a knee replacement, and the hospital arranged transportation for plaintiff to get to his follow up doctor’s appointment through defendant medical transportation company. When defendant’s driver arrived, he pushed plaintiff in a wheelchair from his room to the van, and plaintiff entered the van using a walker. Once in the van, plaintiff was presented with a two-sided form, with one side containing a “run report” and the other side containing a “Wheelchair Van Transportation Agreement.” The agreement “consisted of nine single-spaced paragraphs, including three paragraphs of exculpatory language” which purported to release defendant “from any and all claims arising from or in any way associated with any transportation services provided by [defendant].” Once plaintiff signed the form, the driver took him to his doctor’s appointment. While entering the van after the appointment, plaintiff “lost his footing on the running board, fell, and was injured.”

Plaintiff brought this negligence claim based on his injuries. The trial court held that the exculpatory agreement was enforceable, and the Court of Appeals affirmed that decision. The Court of Appeals specifically found that “the case involved non-professional transportation services and presented no significant public interest considerations.” (internal citation omitted). The Supreme Court reversed.

In its opinion, the Supreme Court first went through a lengthy analysis of the history of Tennessee’s approach to enforcing exculpatory agreements, noting the convoluted state of the law in this area. The Court pointed out that factors to be considered in enforcing exculpatory agreements were adopted in Olson v. Molzen, 558 S.W.2d 429 (Tenn. 1977), but that these factors had not been applied in a consistent way. It then looked at the approaches used by other states, finding some common principles that emerged across jurisdictions.

With this background, the Court concluded that “contracts exempting one party from liability for negligence are not disfavored and are generally enforceable” in Tennessee. (internal citation omitted). The Court found it necessary to “restate our approach to determining the validity of exculpatory agreements,” and held:

[T]he enforceability of an exculpatory agreement should be determined by considering the totality of the circumstances and weighing these non-exclusive factors: (1) relative bargaining power of the parties; (2) clarity of the exculpatory language, which should be clear, unambiguous, and unmistakable about what the party who signs the agreement is giving up; and (3) public policy and public interest implications. The totality of the facts and circumstances of each case will dictate the applicability of and the weight to be given to each of these factors. The factors need not be weighed equally in any given case—rather, the analysis should involve balancing each of these considerations give the facts and circumstances surrounding the formation of the agreement. In addition, we hold that there is no ‘professional services criterion’ that restricts application of this analysis to contracts for professional services.

(internal citation omitted).

After listing these three factors, the Supreme Court “provide[d] additional guidance” as to how they should be used and applied. For relative bargaining power, the Court noted that “two key criteria are the importance of the service at issue for the physical or economic well-being of the party signing the agreement and the amount of free choice that the party has in seeking alternate services.” (internal citation omitted). Regarding clarity of language, the Court stated that “[t]he language of an exculpatory agreement must clearly and unequivocally state a party’s intent to be relieved from liability, and the wording must be so clear and understandable that an ordinary and knowledgeable person will know what he or she is contracting away.” (internal citation and quotation omitted). In addition, the agreement “must also alert the party agreeing [to it] that the provision concerns a substantial right,” and the language cannot be “so broad as to relieve the exculpated party from any liability for any injury for any reason.” (internal citations omitted).

Finally, when considering public policy and the public interest, the Court stated that an agreement will be unenforceable “if it conflicts with the constitution, statutes, or judicial decisions of this state or tends to be harmful to the public good, public interest, or public welfare.” (internal citation omitted). While this factor is the hardest to articulate, the Court noted that “whether the public interest is affected may be determined by considering whether a party to the transaction has a public service obligation, such as a public utility, common carrier, or innkeeper,” and that public policy considerations should include “whether the services involved are of great importance to the public, which are a practical necessity for some members of the public.” (internal citations omitted).

Turning to the present case, the Court stated that when looking at the relative bargaining power, plaintiff was an older man who was living in a residential hospital, and that plaintiff himself did not even select defendant as his mode of transportation. Plaintiff “had limited time to review and sign before being transported to his doctor’s appointment,” and the agreement was presented to plaintiff “on a take-it-or-leave-it basis with the expectation that he would sign it.” The driver did not understand the agreement and “could not have explained it if asked,” and plaintiff had a serious need to get to his doctor’s appointment. Further, although plaintiff did not have a prior relationship with defendant transportation service, “he did have a hospital-patient relationship with HealthSouth, the entity that had arranged for his transportation by [defendant].” Essentially, plaintiff was presented with the choice of either signing the agreement or delaying his medical appointment.

Regarding the language of the agreement, the Court pointed out that much of the agreement here “appears in bold print and all capital letters,” and that at least some of the language “contains no limitation for claims of gross negligence or willful misconduct,” but appears to release defendant from liability for any injury for any reason. The Court found that the language used here was “overly broad and ambiguous,” and that plaintiff was unlikely to understand what he was agreeing to when signing this form.

On the third factor, public policy and public interest, the Court noted that plaintiff’s “appointment with his doctor was a medical necessity,” and that defendant “was in a position of greater responsibility when it undertook to transport [plaintiff] to and from his doctor’s office.” The Court concluded that “public policy should…protect a hospital patient under the circumstances faced by [plaintiff] when he signed the Agreement.” Based on all the factors and the totality of the circumstances, then, the Court held that the exculpatory agreement at issue was unenforceable.

This is a long but instructive opinion with a detailed summary of the current state of exculpatory agreement enforceability in Tennessee. Any attorney with a case that involves an exculpatory agreement should read this opinion carefully and keep an eye on how it begins to be applied in lower courts.