By VICTOR VEPRAUSKAS, a partner with the business law practice group of Bloomfield Hills, Michigan-based Beier Howlett P.C.
Toss out the parental liability waivers and replace them with an increased insurance policy? Recent court decisions indicate that the traditional preinjury liability waiver, signed by parents to allow their child's participation in a range of activities, may no longer hold up in court.
For decades, businesses, schools and nonprofit organizations have used parental liability waivers as a tool to shift financial risk and manage costs of liability and insurance premiums. However, according to a June 18, decision by the Michigan Supreme Court, the traditional pre-injury liability waiver is no longer enforceable under Michigan law.
Ramifications of this decision are expected to be far-reaching, as organizations of all types are currently left open to liability in Michigan. From school districts hosting field trips, to traveling sports teams, to amusement park or dance/gymnastic businesses, the hosting organization is not protected by a parent's signature on the pre-injury waiver under Michigan common law. By not enforcing parental preinjury waivers, it will be nearly impossible for organizations, whether nonprofit or for-profit, to assess and manage the risk as to any activities related to minors. This uncertainty adversely affects an organization's profitability and hinders growth.
Although the parental liability waiver has long been the accepted release form for an organization hosting activities for minors from day camp to travel sports, the Michigan Supreme Court noted that a parent or guardian has no authority to bind his child by contract (absent special circumstances), and a parental pre-injury waiver is a contract. Michigan's common law rule is that a minor lacks the capacity to contract for his or herself. The court also held that it is clear a minor cannot empower an agent or attorney to act for him or her in Michigan.
The case, Woodman v. Kera LLC, involved a 5-year-old child who broke his leg by falling off an inflatable slide at a birthday party held in a commercial Bounce Party facility. Although the parents signed a waiver before the child engaged in the activity, they were able to successfully sue the facility after the injury despite having executed a preinjury liability waiver. The Michigan Supreme Court did not differentiate between a for-profit organization's activities versus a nonprofit organization's activities.
A child can, however, be bound by a parent's act when a statute grants that authority to a parent.
The statutory authority of a parent to bind a child has been subject to litigation for years. Legislation, House Bill 4970, was proposed in Michigan to modify Michigan's common law rule. The HB 4970 would add Section 5109 to Michigan's Estates and Protected Individuals Code (EPIC). The bill would allow parents or guardians of a minor to provide a written release from liability. The bill would only apply to injuries sustained by minors who were actively participating in a recreational sport sponsored or organized by nongovernmental, nonprofit organizations arising from ordinary negligence.
Although Michigan amended EPIC in April, the amendments were adopted without Section 5109 of HB 4970.
As of Sept. 1, HB 4970 has not been adopted. Even if HB 4970 was made law in Michigan, it would not address all the issues to avoid litigation. The bill does not protect for-profit businesses. Also, the bill focuses on ordinary versus gross negligence, which would be subject to litigation if the bill was adopted in its current form.
Given the constant flux in law of every state, how can an organization protect itself? There are several tools that an organization can still use in an attempt to reduce its liability and mitigate risk, which include: parental liability waivers; an assumption of risk form; and parental indemnifications.
One may ask why an organization would use a parental liability waiver in a state that does not enforce them. First, it is possible that the law of a state, such as Michigan, changes to enforce parental liability waivers. Also, the use of a parental liability waiver does not put an organization in any worse position without such a waiver. Such a waiver may even prevent lawsuits or facilitate a quick resolution. Finally, there are states, such as California, that do enforce parental pre-injury liability waivers. One solution may be to have a provision in the waiver that expressly provides that the governing substantive law will be the law of a state that enforces such parental waivers. The intent would be to have a court in a state that does not enforce parental waivers have to apply the substantive law of a state that does enforce such waivers.
Another way to attempt to reduce liability is to use an assumption of risk form. This should be a separate form from any waiver, but the language should also be included in a waiver. The idea with this tool is to set forth very specifically all of the inherent risks and dangers of the activity to be participated in by the minor. This document as well as the waiver can be offered into evidence as proof that the organization warned the parent and minor of the risks involved with the activity so as to assist in triggering the assumption of risk defense.
The third way an organization can attempt to limit liability is use of parental indemnifications. The Michigan Supreme Court Justice that wrote the opinion in Woodman v. Kera alluded to the use of a parental indemnity as an alternative to reduce liability. However, the other justices commented that such issue was not before the court and would likely be held to directly contravene the compelling policy reasons that exist for the historic common law rule. While courts in a number of states have held that such indemnity agreements are unenforceable because they produce the same effect as parental pre-injury liability waivers, other states have upheld such parental indemnity agreements. It is recommended that a parental indemnification be carefully drafted as a separate document and expressly provide the substantive law to be applied be that of a state that upholds such agreements.
With no clear solution to the liability issue as to minors, any organization that provides activities for minors should consult with its insurance agents and attorneys to determine how best to limit liability from claims involving minors. Professionals advising organizations that have activities for minors must stay abreast of the applicable law as to parental liability waivers. The key is to determine the "applicable law" as to parental liability waivers or any other document used in an attempt to manage an organization's risk.
The analysis must also take into account the specific facts of each case, such as for-profit versus nonprofit, ordinary negligence versus gross negligence, or common law versus specific statute, and of course the specific state law.
November 1, 2010
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