Use of Prospective Exculpatory Agreements Under Maryland & Virginia Law to Mitigate a Business’s Exposure to COVID-19 Premises/Contagion Liability
Kelley Drye Client Advisory
June 29, 2020
Our previous client advisory discussed the threat of lawsuits by customers and visitors who claim they contracted COVID-19 as a result of the negligence by stores, office buildings or other facilities failing to protect against exposure to the disease. In that advisory, we reviewed various steps businesses can take to mitigate against liability for COVID-19 “premises/contagion” claims.

With this advisory, we examine the particular strategy by businesses to obtain prospective exculpatory agreements from customers and visitors to their premises. A prospective exculpatory agreement is a contract in which one party waives or releases its right to sue another party based on certain grounds for injury the party may sustain in the future. These can be stand-alone contracts or they can appear as a provision within another agreement.

Our examination below focuses on the use of these kinds of agreements for COVID-19 premises/contagion personal injury liability under Maryland and Virginia law.
 

Maryland

In the absence of a statute to the contrary, a prospective exculpatory agreement is generally enforceable under Maryland law if its language is clear and specifically indicates that the parties intend to release future claims. Such an agreement is not enforceable if it:
 
  1. releases claims for injuries caused by the released party’s intentional, reckless, wanton, or grossly negligent conduct;

  2. results from grossly unequal bargaining power, effectively “put[ting] [the releasing party] at the mercy of the [the released party’s] negligence;” or

  3. is part of a “transaction affecting the public interest.”

     


Based on the above principles:

  • A prospective exculpatory agreement with a customer or visitor to a business’s premises that clearly and specifically provides that s/he is releasing the business from COVID-19 related personal injury claims would likely be enforceable under Maryland law if it is limited to claims arising from negligence. However, the agreement likely would not be enforceable if it extends to personal injury due to the business’s intentional, willful, wanton or grossly negligent conduct.

  • Businesses considered to be essential may face difficulty enforcing such agreements entered into under Maryland law because of the second exception. Those businesses, precisely because they are essential, arguably have unequal bargaining power over their customers. This would be so especially for businesses that sell necessary items for which no alternative source is reasonably available to their customers.

  • The third exception also could pose a problem for essential businesses. This exception includes exculpatory agreements involving performance of a public service, such as by public utilities, common carriers, and innkeepers, and transactions so important to the public good that an exculpatory clause would be “patently offensive.” The potential problem for essential businesses is that a consideration under this exception is whether the exculpated party provides a good/service that is a practical necessity for some members of the public.

In general, whether a prospective exculpatory agreement would be unenforceable under Maryland law is inherently a fact-intensive question; the foregoing are just some examples of circumstances where an agreement of this nature addressing COVID-19 personal injury claims could be unenforceable.  Notwithstanding, it is interesting to note that unlike many other states, Maryland will enforce otherwise valid exculpatory agreements executed by parents on behalf of their minor children.
 

Virginia

It is settled Virginia law that prospective exculpatory agreements releasing liability for negligence are void as against public policy.

There may, however, be a potential work-around. Specifically, the agreement can include a clause that it is to be governed by the law of a state other than Virginia – i.e,  a state in which prospective exculpatory agreements generally are enforceable as a matter of course. Although the default rule of Virginia law is that contracts entered into in Virginia will be governed by Virginia law, at times Virginia law treats choice of law clauses in contracts favorably and will honor the clause to apply the law of the jurisdiction designated.

One issue surrounding the application of law of a jurisdiction outside Virginia is whether the foreign law contravenes “strong” Virginia public policy. Here, the question becomes whether a court would uphold a foreign state law allowing a prospective exculpatory agreement for COVID-19 premises/contagion claims or not enforce it as against a “strong” Virginia public policy that does not recognize exculpatory agreements. There is no clear answer to this question.

Despite the risk that a prospective exculpatory agreement for COVID-19 premises/contagion claims could be unenforceable, obtaining such an agreement from customers and visitors may still be of value to Virginia businesses. Even if unenforceable, the agreement still likely could be admitted as evidence under Virginia law in a legal proceeding to show that the customer/visitor understood the risk that s/he could be exposed to and contract COVID-19 by entering the business’s premises. That proof, in turn, could support an “assumption of the risk” defense to a COVID-19 premises/contagion claim. That defense, if proved, bars a plaintiff from recovering for injury from a known danger, the nature and extent of which s/he fully understood and to which s/he voluntarily exposed himself or herself.
 
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If your business is interested in using prospective exculpatory agreements or other measures to try to reduce the risks posed by COVID-19 exposure/contagion lawsuits, we look forward to assisting you. Please contact Ira Kasdan [ikasdan@kelleydrye.com; (202) 342-8864] or Joe Wilson [jwilson@kelleydrye.com; (202) 342-8504)] if you have questions.