Vendor Agreements. An exculpatory clause is language in an agreement which relieves one or both parties from liability under certain conditions. A common example is a parking lot ticket stub that states that the parking lot owner is not responsible for theft or damage to the vehicle. Exculpatory clauses are not automatically enforced by courts and can be voided if determined to be unreasonable or if parties to the contract did not have equal bargaining power.

RECOMMENDATION: Exculpatory clauses, as with hold harmless and indemnity provisions, inserted into agreements by vendors can have negative consequences for an association. Accordingly, boards of directors should have all contracts reviewed by legal counsel.

Governing Documents. Exculpatory language can also be found in an association's governing documents. A common one is:

Neither the Association nor the Board of Directors shall be liable for damages to any Owner resulting from water which may leak or flow from outside of any unit or from any part of the building by reason of a mistake in judgment or negligence.

A leading case on such provisions noted that "The law has traditionally viewed with disfavor attempts to secure insulation from one's own negligence or willful misconduct, and such provisions are strictly construed against the person relying on them." Franklin v. Marie Antoinette.

The court looked at the narrow issue of whether a nonnegligent association may contractually shift the risk of loss to the condominium owner and concluded that the contractual allocation of risk was reasonable and fair to the condominium owners as a whole. The court noted that:

By reducing the Association's risk of liability, the condominium owners have reduced their own risk. The condominium owners are, after all, the ones who are assessed to pay for improvements, insurance premiums, liability judgments not covered by insurance, and the like. Plaintiff is only one of many owners who collectively entered into the contract (CC&Rs) with the Association. A reasonable and fair reduction of the Association's risk which mutually benefits the condominium owners as a whole does not suddenly become violative of public policy upon the nonnegligent infliction of property damage to an individual unit. (Franklin v. Marie Antoinette).

Generally, a clause exempting a party from liability for that party's own negligence is enforceable, absent a specific public interest or statutory exception. These types of exculpatory clauses have been upheld in numerous contexts. For example, in Randas v. YMCA 0/ Metropolitan Los Angeles (1993), 17 Cal.App.4th 158, the court upheld an exculpatory clause in the context of a swimming pool accident at a YMCA swimming pool. In Platzer v. Mammoth Mountain Ski Area (2002), 104 Cal.App.4th 1253, the court upheld the validity of an exculpatory clause in the context of chair lift accident at a ski resort. In the older case of Werner v. Knoll (1948), an exculpatory clause was upheld in the context of a lease agreement between a tenant farmer and a landowner. More recently, an exculpatory clause was upheld in a drilling contract. CAZA Drilling (California), Inc. v. TEG Oil & Gas USA, Inc. (2006) 142 Cal.App.4th 453. As noted in 1 Witkin, Summary o/California Law 10th Ed. (2005), Section 660 at 737-38:

The present view is that a contract exempting liability for ordinary negligence is valid where no public interest is involved and no statute expressly prohibits it.

RECOMMENDATION: While not necessary, associations should consider including exculpatory language in their CC&Rs when they amend or restate their documents so as to protect the membership from some forms of liability.