Limitation of liability; liquidated damages; exculpatory clause; arbitration. Divided court rejects as unconscionable a limitation of liability clause and an arbitration clause in home inspection contract.

  Glassford v. BrickKicker and GDM Home Services, Inc. (2009-362) (04-Nov-2011) 2011 VT 118 (Skoglund, J ) (Dooley, J., concurring and dissenting.) (Burgess, J., joined by Chief Justice Reiber, concurring and dissenting).

Plaintiffs, who brought suit to obtain compensation for an allegedly negligent home inspection, appeal the superior court’s order granting summary judgment in favor of the home inspector based on the terms of a binding arbitration agreement in the parties’ contract.  At issue is whether the superior court erred in rejecting plaintiffs’ contention that the terms of the home inspection contract are unconscionable under the common law.  The  contract limited defendant’s liability to no more than the $285 charged for its inspection.  Yet homebuyer would have to pay, at minimum, a $1350 arbitration fee to recover no more than the $285 inspection fee. We find unconscionable the contractual provisions limiting liability to the cost of the inspection and yet requiring arbitration that would necessarily cost more than the amount of the liability limit.  Because the limited liability and arbitration provisions are interconnected in creating the substantively unconscionable illusory remedy, we strike both of them, notwithstanding the contract’s boilerplate severability clause.   Accordingly, we reverse the superior court’s decision and remand the matter for further proceedings consistent with this opinion.

The limitation of liability clause in this case fails to meet any of the elements of the test for a valid liquidated damages provision.  It also fails the Dalury  public policy test under which an exculpatory agreement is invalid if it exhibits some or all of the following characteristics:

[1.] It concerns a business of a type generally thought suitable for public regulation. [2.] The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. [3.] The party holds [it]self out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. [4.] As a result of the essential nature of the service, in the economic setting of the  transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks [the party's] services. [5.] In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence. [6.] Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or [the seller's] agents

Dalury, (quoting Justice Tobriner of the California Supreme Court in Tunkl. )

Dooley, J., concurring and dissenting, agrees with the majority’s decision to strike the limited-liability provision. Because it fails the Dalury standard for an exculpatory clause and is not a valid liquidated damages proviso, it is unconscionable as a matter of law.   However Justice Dooley would remand for the superior court to reconsider whether the arbitration requirement is unconscionable in light of the decision regarding the limitation of liability. In general, if a contract or a term within a contract is unconscionable, a court can choose either to refuse to enforce the contract, or it may choose to enforce the remainder of the contract with the unconscionable term excised so as to avoid any unconscionable result.  Restatement (Second) of Contracts § 208 (1981).

Burgess, J., joined by Chief Justice Reiber, concurring and dissenting, agree with the majority’s decision to strike the arbitration provision as one-sided and “so ridiculously unfair that it defies reformation.”  However they disagree that Dalury applies and conclude there is no unconscionability per se in the limitation of liability.

Attorney’s fees. Indemnity agreement did not require award of fees incurred to enforce the indemnity clause. Case analogous to denial of fees for suits that establish insurance coverage.

Southwick v. City of Rutland, (II), 2011 VT 105 (Skoglund, J. )


After we held an indemnity clause applies to claims based on the City’s own negligence, Southwick v. City of Rutland, 2011 VT 53, the City filed a motion for attorney’s fees covering all legal expenses associated not only with its defense in the underlying Southwick action, but also for all expenses incurred through the litigation of the indemnity and third-party actions. The trial court entered judgment in favor of the City, awarding the entirety of its requested attorney’s fees. Because the plain language of the contract does not require VSA to pay attorney’s fees incurred by the City in pursuing either indemnity from VSA or other third-party actions, we reverse and remand.


The Agreement’s indemnity clause reads:


"Indemnification and Hold Harmless: [VSA] hereby agrees to defend, indemnify and hold harmless Rutland, . . . its officers, trustees, agents and employees from all claims for bodily injury or property damage arising from or out of the presence of [VSA], including its employees, agents, representatives, guests and others present because of the event or [VSA’s] activities in or about Whites Park, including the entrances, lobbies and exits thereof, the sidewalks, streets and approaches adjoining the campus or any portion of the campus used by [VSA] or any of the above stated. [VSA] shall be responsible for all costs of defense, including reasonable attorney’s fees, and shall pay all fines or recoveries against Rutland."


The costs contemplated in the Agreement do not include the City’s claim to enforce the indemnity clause against VSA, or its claims against P&C and Nautilus. Contrary to the trial court’s conclusion, the indemnification clause is not all encompassing: it limits VSA’s obligation to those costs associated with the City’s defense against claims for bodily injury or property damage. Therefore, there is no contractual basis for departing from the American Rule and awarding attorney’s fees for time expended on work other than for defense in the Southwick action. See Windsor Sch. Dist. v. State, 2008 VT 27, ¶ 28, 183 Vt. 452, 956 A.2d 528 (“An insured is not entitled to recover attorney’s fees incurred in a declaratory-relief action to establish the insurer’s duty to defend or indemnify.”); see also Concord Gen. Mut. Ins. Co. v. Woods, 2003 VT 33, ¶ 18, 175 Vt. 212, 824 A.2d 572 (denying insured attorney’s fees incurred in defense of insurer’s declaratory action).


The Southwicks’ action and the City’s third-party claims might have been set in motion by the same event, they are not based on a “common core of facts” within the rule of L’Esperance v.Benware, where plaintiffs’ lawsuit was not one “which can be viewed as a series of discrete claims so that the hours expended can be divided on a claim by claim basis.” 2003 VT 43, ¶ 24, 175 Vt. 292, 830 A.2d 675. Nor is there an equitable basis for awarding the City attorney’s fees related to its third-party actions under the urle of In re Gadhue, where we upheld an award of attorney’s fees on the basis of bad faith. 149 Vt. 322, 328-29, 544 A.2d 1151, 1154-55 (1987).

Exculpatory release is clear, valid and enforceable to preclude negligence liability.

Provoncha v. Vermont Motocross Assn. 2009 VT 29 (Skoglund, J.)(Johnson, J., dissenting.)

Heidi and Clint Provoncha appeal from the Orleans County Superior Court’s grant of summary judgment in favor of Vermont Motocross Association (VMA). The Provonchas filed suit alleging negligence in connection with injuries Mr. Provoncha sustained while participating in a motocross event sponsored by VMA. The superior court ruled that the “Race Day Entry Form,” which Mr. Provoncha signed the day before the event, operated as a waiver of the negligence claim. The form releases VMA "from liability, loss, claims, and demands that may accrue from any loss, damage or injury, including paralization and/or death to my person or property, in anyway arising while engaged in competition or in practice or preparation therefore, or while entering or departing the premises, from any cause what so ever." The Provonchas contend on appeal that the Race Day Entry Form does not release VMA from liability because: (1) it is not sufficiently clear as required by our decision in Thompson v. Hi Tech Motor Sports, Inc., 2008 VT 15, ___ Vt. ___, 945 A.2d 368; and (2) it violates public policy. We affirm the superior court’s grant of summary judgment.

The question of whether the Race Day Entry Form at issue in this case was sufficiently clear to release VMA and Driver from liability for negligence is governed by Douglass v. Skiing Standards, Inc., 142 Vt. 634, 459 A.2d 97 (1983) (release was sufficiently clear for purposes of exculpating ski area from negligence liability notwithstanding its failure to include the word “negligence” in its terms.) We recently reaffirmed Douglass in Thompson, where we held that, unlike Douglass, an agreement releasing a motorcycle dealership from “any claim” was not sufficiently clear to exculpate it from its own negligent acts. The release at issue in Thompson read: “The undersigned waives any claim that he/she may have now or in the future against [defendant] . . . for injury to him/her self as a result of his/her operation . . . of a motorized vehicle owned by . . . [defendant].” In contrast, the Race Day Entry Form, like the Douglass release, is comprehensive as to type of claim—"liability, loss, claims, and demands that may accrue from any loss, damage or injury.” The Race Day Entry form is sufficiently clear as to operate as a release of negligence claims against defendants.

We explained in Thompson that “evaluating whether a release from liability contravenes public policy does not follow a strict formula because no single formula will reach the relevant public policy issues in every factual context.” Id., ¶ 6 (quotation omitted). “Rather,” we continued, “we consider the totality of the circumstances and societal expectations to determine whether sufficient public interest exists to avoid a release.” Id. We conclude, given the totality of the circumstances of this case, the nature of the activity, and the expectations of society, that there are no public policy barriers to effectuating the Race Day Entry Form.

Johnson, J., dissents for the simple and obvious reason that this case is plainly controlled by Thompson v. Hi Tech Motor Sports, Inc., 2008 VT 15, ___ Vt. ___, 945 A.2d 368, where the Court held that a similar contractual release was insufficiently clear and unambiguous to insulate the defendant from liability for its own negligence.