Opinion ID: 2362143
Heading Depth: 2
Heading Rank: 3

Heading: The Exculpatory Clause Is Valid and Bars Cumberland Valley's and Del Rio's Claims.

Text: As Bell County Coal contends on its cross-appeal, we find as a matter of law that all of Cumberland Valley's and Del Rio's claims are barred by Paragraph 30 of the Contract Mining agreement, [8] which provides: 30. Condition of Premises. Contractor accepts the Premises hereinabove described in their existing condition and acknowledges that Contractor has made an investigation to determine existing conditions, limitation of the areas involved, equipment necessary to conduct and complete operations, laws affecting performance hereunder, Owner's knowledge of prior mining, location of old works and latent dangers and dangerous conditions. OWNER MAKES NO IMPLIED OR EXPRESS WARRANTY OR REPRESENTATION CONCERNING THE EXISTENCE, QUANTITY, QUALITY, MINEABILITY OF MERCHANTIBILITY OF THE COAL SEAM WITHIN THE PREMISES, TITLE THERETO OR OTHERWISE AND CONTRACTOR COVENANTS AND AGREES THAT NO REPRESENTATIONS BY OR ON BEHALF OF OWNER REGARDING THE PREMISES, THEIR CONDITION, THE USE OR OCCUPATION THAT MAY BE MADE THEREOF OR THE INCOME THEREFROM. Owner shall in no event assume or be liable for any loss incurred by Contractor under this Agreement. Owner does not assume any responsibility or liability for the present or future condition of the Premises[,] and Owner shall not be liable to Contractor for any damage to or destruction of the Premises or Contractor's property or the property of other person due to fires, floods, or any other accident or natural catastrophe which occurs on or within the Premises. We recently stated in Hargis v. Baize [9] that: An exculpatory contract for exemption from future liability for negligence, whether ordinary or gross, is not invalid per se. . . . However, such contracts are disfavored and are strictly construed against the parties relying upon them. . . . The wording of the release must be so clear and understandable that an ordinarily prudent and knowledgeable party to it will know what he or she is contracting away; it must be unmistakable. [10] Even strictly construing Paragraph 30 against Bell County Coal, we find that the wording of the release was unmistakable. Paragraph 30 clearly states that Cumberland Valley has investigated prior mine works and latent or dangerous conditions, that Bell County Coal makes no representations regarding the mineability of the coal, and that Bell County Coal will not be liable for damages caused by any flooding. So we find that the hazard experienced was clearly within the contemplation of the provision [11] and that Paragraph 30 cannot be invalidated on the basis of unclear wording or lack of specificity. Having determined that the wording of the provision was sufficiently clear that Cumberland Valley knew what it was contracting away, we must next determine whether this provision must be invalidated as void against public policy. Recognizing the importance of freedom to contract, the courts of this Commonwealth have traditionally enforced exculpatory provisions unless such enforcement violates public policy. [12] And despite perceived inconsistencies in recent Kentucky case law, the basic principles regarding the enforceability of exculpatory clauses or contracts were set forth over a century ago in Greenwich Insurance Co. v. Louisville & Nashville Railroad Co. [13] In deciding to uphold the exculpatory clause at issue there, our predecessors noted that the parties were dealing at arm's length and upon an equal footing[,] and that the contract was entered into voluntarily without either party being compelled to enter into the contract on the basis of necessity. [14] Therefore, the railroad could validly contract away liability for its own negligence however gross, short of wantonness or willfulness [15] toward the brewing company, which leased land located in the railroad's right-of-way and built a cold storage house on the right-of-way. The court noted that the railroad, as a common carrier, could not have enforced an exculpatory clause or release of negligence against passengers or freight shipping customers as a matter of public policy because these customers were compelled to travel or ship on the railroad due to its monopoly and, therefore, did not have equal bargaining power. [16] Finding no such disparity in bargaining power between the railroad and the brewing company, the court found no reason to disturb the contract, which the parties entered into on an entirely voluntary basis because the brewing company received consideration for its agreement to bear the risk of fire and because the public was not affected by the parties' contract. [17] We conclude that under the long-standing principles of contract law explained in Greenwich , the exculpatory clause at hand must be enforced as part of an arm's-length transaction between sophisticated parties with equal bargaining power. We believe that more recent cases, even those invalidating exculpatory clauses on the basis of public policy, can be harmonized with Greenwich by focusing on the parties' bargaining power. These cases further suggest that there is no reason to invalidate the exculpatory clause before us. [18] We find this exculpatory clause to be valid, even in light of recent authority disallowing a party to contract away liability for violation of safety statutes. As discussed below, we conclude that the parties shared the duty of preparing accurate mine projection maps to comply with statutes aimed at furthering mine safety. Furthermore, no significant disparity in bargaining power existed between the contracting parties in the instant case, unlike most cases in which exculpatory clauses were deemed invalid due to safety statute violations or other public policy concerns. Thus, we find no reason to disturb the parties' agreement to shift the risk of loss for any violation of a statutory duty, which they both share. We recently stated in Hargis , [19] [a] party cannot contract away liability for damages caused by that party's failure to comply with a duty imposed by a safety statute. Specifically, Cumberland Valley and Del Rio contend that Bell County Coal should not be allowed to contract away its future liability for violation of statutory duties in regard to mine mapping. Under the contract, Bell County Coal had the duty to prepare mine projection maps due to its control of several adjoining mining areas; and the Contractor (Cumberland Valley and its assignee, Del Rio) had the duty to follow these projections strictly when mining. [20] Cumberland Valley and Del Rio contend that since Bell County Coal undertook the contractual duty to prepare projection maps, Bell County Coal had a concomitant duty to comply with KRS 352.450 when preparing the projection maps. KRS 352.450 states, in relevant part, that the operator or superintendent shall make annual maps of workings of the mines; and the maps shall show a number of items, including worked-out or abandoned areas and [a]ll known drill holes that penetrate the coal bed being mined. But Cumberland Valley and Del Rio contend they are not bound by this statute since Bell County Coal acted as an operator or superintendent of the mine. We disagree. An operator is a licensee, owner, lessee, or other person who operates or controls a coal mine. [21] A superintendent is the person who, on behalf of the licensee, has immediate supervision of one [] or more mines[.] [22] Based on the words of the statute, Cumberland Valley and Del Rio were clearly operators or superintendents under these definitions because they operated the mine and had immediate supervision over it. So Cumberland Valley and Del Rio had a statutory duty to ensure that accurate projections were made. But since Bell County Coal had overall control over the No. 5 Mine, as well as other mines in the area, it was also an operator of the No. 5 Mine. So, under the statute, we find that Bell County Coal and Cumberland Valley and Del Rio shared the duty and responsibility of ensuring that accurate mining projection maps were prepared on an annual basis. Although Cumberland Valley and Del Rio delegated the actual preparation of maps to Bell County Coal by contract, Cumberland Valley and Del Rio still shared the responsibility for ensuring that accurate mining projection plans were prepared. This responsibility is reflected by the recital in the agreement that Cumberland Valley had investigated Bell County Coal's knowledge of prior works, latent defects, and other dangerous conditions. Assuming that KRS 352.450 qualifies as a safety statute since neither party has argued otherwise, [23] we find that both parties to the contract shared the duty of providing accurate mining projections under KRS 352.450, presumably for the purpose of protecting miners and the public at large. We cannot see how the public is harmed by these two sophisticated parties to the contract (who share the duty of preparing accurate mine projections) allocating the risk of their own losses for any inaccuracies between themselves. A personal injury claim was at stake in Hargis , in contrast to the economic claim regarding loss of equipment and lost profits, as in the instant case. We did not expressly limit application of the rule prohibiting contracting against liability for damages for safety statute violation to personal injury cases in Hargis . We do not elect to limit or distinguish Hargis based upon whether a personal injury or solely an economic loss resulted from a safety statute violation because we do not find this factor solely dispositive. As appellees point out, there is no published Kentucky state case in which an exculpatory clause was invalidated when only property loss (as opposed to personal injury) occurred. But the presence or absence of personal injury is not the sole factor for determining whether an exculpatory clause is valid under Kentucky law. True, exculpatory clauses have been invalidated more frequently in the context of personal injury cases where an individual is often forced to sign a release to obtain a necessity such as medical care or employment from a party in a superior bargaining position. However, exculpatory clauses have been enforced by federal courts applying Kentucky law in regard to personal injuries produced by recreational pursuits on the bases that the races affected only private interests, that participation was voluntary, that the parties possessed equal bargaining power, and that the races could not continue without such protection from liability. [24] When our courts have invalidated exculpatory clauses based upon a breach of a statutory duty or breach of a duty to the public at large, those agreements involved a major disparity in bargaining power between the parties. For example, in Meiman v. Rehabilitation Center, Inc., [25] our predecessor court invalidated a release, which an amputee was required to sign before the rehabilitation center would treat her. In doing so, the court stated: in no event can such an exculpatory agreement be upheld where either (1) the interest of the public requires the performance of such duties, or (2)[] because the parties do not stand upon a footing of equality, the weaker party is compelled to submit to the stipulation. 6 A.L.R.3d 705. In our view, the case at bar is one in which it is clearly against public policy for the Center to seek refuge in the exculpatory agreement. [26] Similarly, although our decision in Hargis does not explicitly discuss the parties' relative bargaining positions, a significant disparity in bargaining positions existed between the parties to that contract. The plaintiff's decedent was an individual truck driver who worked as an independent contractor with the defendant owner of several sawmills. [27] Presumably, the plaintiff's decedent in Hargis was required to sign the release at issue before he could deliver logs to the defendant's sawmill and, therefore, was compelled to submit to the stipulation. So Hargis is distinguishable from the instant case. Here, sophisticated corporate entities negotiated the allocation of a jointly shared risk and expressly incorporated that risk allocation into a contract that neither of them was compelled to enter into to obtain a necessity, such as medical care or personal employment. An early case, holding that parties should not be allowed to contract away liability for violation of a safety statute, noted the imbalance of power between the parties (a coal miner and his employer) and reasoned as follows: The very fact of such legislation indicates that the lawmakers believed that the operation of the common-law rules did not afford the employé sufficient protection; that, under the development of the modern industrial system, tending to centralization of capital and impersonal management, the employé did not stand upon a footing of equality with the employer in contracting for his safety; and that the necessity of earning the daily wage frequently constrained the employé to put up with defective place and tools without complaint, by reason of his fear of the consequences of complaining. From these conditions grew the necessity, or at least the propriety, of requiring certain specific measures to be taken for the protection of employé's. . . . A definite standard was fixed by the legislature. . . . If the employer may avail himself of the defense that the employé agreed in advance that the statutes should be disregarded, the court would be measuring the rights of the persons whom the lawmakers intended to protect by the common-law standard of the reasonably prudent person, and not by the definite standard set up by the legislature. [28] We find no suggestion that these parties were not on a footing of equality or that Cumberland Valley or Del Rio belonged to a class of persons that the legislature attempted to protect by setting a more definite standard. Rather, since these parties were dealing at arm's length and upon an equal footing, the effect of Paragraph 30 is not so much that [Bell County Coal] contracts against its own negligence as that [Cumberland Valley and its assignee, Del Rio] agree[] to alone bear all risks from flooding. [29] Cumberland Valley and Del Rio received consideration for agreeing to bear the risks of flooding, and [w]e cannot see that the public are in any wise affected by such a contract[.] [30] Given that the clause at issue was negotiated as part of an arm's-length transaction between two business corporations with presumably equal bargaining power, we find no compelling reason to disturb their written contract. [C]ontracts voluntarily made between competent persons are not to be set aside lightly. As the right of private contract is no small part of the liberty of the citizen, the usual and most important function of courts is to enforce and maintain contracts rather than to enable parties to escape their obligations on the pretext of public policy or illegality. If the legality of the contract can be sustained in whole or in part under any reasonable interpretation of its provisions, courts should not hesitate to decree enforcement. [31] Kentucky courts have long upheld exculpatory clauses in arm's-length transactions between sophisticated parties with equal bargaining power and allowed such parties to bargain against liability for their own negligence and even gross negligence short of willfulness and wantonness. [32] Cumberland Valley and Del Rio have failed to show where they have alleged willful or wanton negligence in the record [33] (other than baldly asserting without citing appropriate authority that any failure to comply with statutory duties necessarily shows willful or wanton negligence). So, since willful or wanton negligence was not at issue, this Court finds no reason to invalidate the exculpatory clause at issue and, thus, reverses the holding of the Court of Appeals on this issue and the judgment of the trial court.