Putting a saddle on a horse does not turn a livery into a saddle manufacturer. Release stops negligence claims and law stops product liability claims.

A woman who fell off a horse while on a horseback ride. She sued for negligence, which the release stopped, product liability which the law stopped and willful and wanton conduct, which will proceed to trial.

Messer v. Hi Country Stables Corp., 2013 U.S. Dist. LEXIS 2675, 2013 WL 93183

State: Colorado; United States District Court for the District of Colorado

Plaintiff: Alva Messer

Defendant: Hi Country Stables Corporation

Plaintiff Claims: negligence; product liability; and, willful and wanton conduct

Defendant Defenses: Release

Holding: Mostly for defendant, however plaintiff could continue on willful and wanton claims

Year: 2013

Summary

A woman purchased a trail ride from the defendant. On the ride, her saddle slipped, and she fell off the horse. She sued for negligence which the release stopped, product’s liability, which failed because the stable is not a manufacturer and willful and wanton conduct. The court allowed the willful and wanton claim to proceed.

Facts

On July 16, 2009, Plaintiff Alva Messer purchased a guided horseback ride from Hi County Stables. Defendant HCS operates commercial horse-back riding at Glacier Creek Stables in Rocky Mountain National Park (“RMNP”). HCS is one of two equestrian companies owned by Rex Walker. The other equestrian company is Sombrero Ranches, Inc. (“SRI”). Before beginning any guided horseback ride, both companies require customers to sign an exculpatory contract, titled “Release” (hereafter “the Release” or “Release Forms”). The Release Forms for HCS and SRI are identical, except for the name of the company being released from liability. The Release Forms for HCS and SRI are printed in tablets containing 100 tear-away forms per tablet. Once printed, the printing company delivers the tablets to the offices of HCS and SRI.

At the start of the 2009 riding season, one tablet of Release Forms labeled SRI was placed in a box of office supplies for delivery to HCS. For reasons that are unexplained by Defendant, those same Release Forms—which Released SRI from liability—were used by HCS at Glacier Creek Stables on July 16, 2009.

Typically, when customers arrive at HCS, they are informed that they must sign a Release. Amongst other employees at HCS, Dallas Marshall informs customers that they are required to sign the Release and “mark their riding ability.”

When the Messers arrived at HCS on July 16, 2009, Marshall followed her normal practice and informed the Messers of the Release. She also requested that they indicate their riding ability, which Plaintiff did. Following this, and before commencing the guided horseback ride, Plaintiff signed the Release. The Release expressly provides that the customer “understands. . .the specific risks. . .arising from riding a horse. . .and that the [customer] nevertheless intentionally agree[s] to assume these risks.”

After signing the Release, Plaintiff entered the corral where she was assigned her horse before commencing the trail ride. The wrangler who led the guests on Plaintiff’s trail ride was Terry Humphrey.

Plaintiff encountered problems with her saddle during the trail ride which required adjustment by Plaintiff and Humphrey.

At the midway point, the Messer group stopped to take a rest break. Plaintiff encountered further problems with her saddle—including slippage of the saddle to the horse’s right.

Sometime later, as Plaintiff’s horse was stepping down a “rock stair” in the trail, Plaintiff fell off the right side of the horse (the “Incident.”) Plaintiff allegedly sustained serious injuries and economic loss resulting from the Incident.

Analysis: making sense of the law based on these facts.

The first issue was the fact the release that was signed did not name the proper defendant. Two stables were owned by the same person, each with different names. Each had a release that named it as the entity being protected. Somehow, a pad of the wrong releases ended up at the defendant, and the release signed by the plaintiff had the name of a different stable on it then where she was riding.

To make changes in a contract like this is called reformation. The court can reform a contract if the party’s intention when signing the contract is the same, and the language does not express the correct intention of the parties.

Reformation of a written instrument is appropriate only when the instrument does not represent the true agreement of the parties and the purpose of reformation is to give effect to the parties’ actual intentions.” Mutual mistake of a contract provides grounds for reformation if the written instrument “does not express the true intent or agreement of the parties.”

A mutual mistake must have occurred for a reformation to be effective.

An “essential prerequisite to a court’s power to reform a contract on the ground of mutual mistake is the existence of a prior agreement that represents the actual expectations of the parties and provides the basis upon which a court orders reformation.”

Because it was obvious that the plaintiff intended to go on a horseback ride with the defendant, where she signed the release, where she paid her money and where she took the ride, the court had no problems correcting the mutual mistake and placing the correct language in the release. This meant placing the name of the defendant in the position of the person to be protected by the release.

Accordingly, the Court finds that there was a mutual mistake at the time the Release was entered into. Mutual intent of the parties was to enter into an agreement whereby HCS would be released from certain claims. This provides the equitable basis to grant the relief. The Court orders that the name “Sombrero Ranches, Inc.” (SRI) be deleted and substituted with “Hi Country Stables” (HCS) in the Release.

The next issue was the validity of the release itself. Under Colorado law, there is a four-part test that a release must pass to be valid.

To determine whether the Release bars Plaintiff’s negligence claim, the Court must consider four factors: (1) the existence of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of the parties is expressed in clear and unambiguous language.

The first three parts of the test the court quickly covered. Prior Colorado Supreme Court cases held that a recreational activity owes no duty to the public; horseback riding is not an essential service that would bar the release under part two of the test and there was no evidence the release was entered into unfairly.

The fourth test the court also found was valid with this release.

With respect to the fourth factor, the Court looks to the language of the Release to elicit its intent. The Court must determine “whether the intent of the parties was to extinguish liability and whether this intent was clearly and unambiguously expressed.”

It was obvious that the intent of the parties was to decide in advance who would pay for the injuries of any patron of the ride. The release in this case repeatedly used the word negligence throughout the document so the plaintiff knew the purpose of the release. The release also pointed out specific risks of horseback riding that the signor could suffer.

The release was valid to stop the negligence claims.

The next issue was the product liability claim. The plaintiff argued that since the defendant had placed the saddle in the stream of commerce, by placing it on the horse, it was liable for any injuries caused by the defectiveness of the saddle.

The defendant argued that the release stopped this claim also. However, the law in Colorado is that a release cannot stop a product liability claim.

That case held that an agreement releasing “a manufacturer from strict products liability for personal injury, in exchange for nothing more than an individual consumer’s right to have or use the product, necessarily violates the public policy of this jurisdiction and is void.”

The court found the product liability claim was not barred by the release. However, the court did hold that just placing a saddle on a horse for a trail ride does not create a product liability claim for defective equipment in Colorado. Horseback riding is a service; it is not a manufacturing process. Placing a saddle on the horse does not change that. The horse-riding service could not exist (for 99.9% of the people) without the saddle.

Plaintiff entered into a contract for a guided five-hour horseback ride through RMNP. This service primarily relied upon a horse (which is not a product) and a saddle (which incidental to that service). Without a product, the product liability claims cannot succeed.

The saddle was not an item manufactured by the defendant; it was incidental to the service being offered by the defendant and so the product liability claim failed. Finally, the defendant was not a manufacturer of saddles.

The final issues were the claims for willful and wanton conduct. A release cannot bar claims that are greater than negligence, willful and wanton conduct or gross negligence.

Willful and wanton conduct claims are mental state claims. Meaning the claim goes to the actions, the mental state of the defendant in ignoring or creating the issue. This require conscious thought, not simple failure. “…willful and wanton conduct requires a mental state “consonant with purpose, intent and voluntary choice.”

The court then allowed the plaintiffs claims based on willful and wanton conduct of the defendant to proceed to trial.

So Now What?

First, there is a need to look at the product liability claim. Not in the fact that most recreation businesses are manufacturing items, but because they are repairing them. Although you can find outfitter made items such as old raft frames, most items used now days are manufactured by a third party. However, many outfitters and recreation businesses do repair items.

Repairing an item may bring the outfitter into the trial under a product liability claim in many states. The outfitter by making repairs has entered into the stream of commerce between the manufacturer and the end user. The outfitter is no longer a user of the product, but a manufacturer of the product.

Remember there are some items you should never repair or that may be illegal to repair.

PFD’s cannot be repaired by law. Climbing harnesses or any other item where the failure would result in catastrophic injury or death or where the manufacturing process is protected by statute or standard should never be repaired.

The reformation issue was stupid. The cost of printing one set of releases on tan paper and the other on white would have eliminated this problem. Other examples would be putting the page numbers on the bottom right of one release and the center or top of the other. Locating the logo of the defendant in a different location on each release would have worked. Anything to that any employee can recognize that they are using the wrong release.

Some day there will be a horseback riding case that does not involve a slipping saddle. Why there still are, is a mystery to me, and I grew up with horses.

What do you think? Leave a comment.

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Messer v. Hi Country Stables Corp., 2013 U.S. Dist. LEXIS 2675, 2013 WL 93183

Messer v. Hi Country Stables Corp., 2013 U.S. Dist. LEXIS 2675, 2013 WL 93183

United States District Court for the District of Colorado

January 8, 2013, Decided; January 8, 2013, Filed

Civil Action No. 11-cv-01500-WJM-MJW

Reporter

2013 U.S. Dist. LEXIS 2675 *; 2013 WL 93183

ALVA MESSER, Plaintiff, v. HI COUNTRY STABLES CORPORATION, Defendant.

Prior History: Messer v. Hi Country Stables Corp., 2012 U.S. Dist. LEXIS 170499 (D. Colo., Nov. 30, 2012)

Counsel:  [*1] For Alva Messer, Plaintiff: Donald L. Salem, Feldmann Nagel, LLC-Denver, Denver, CO.

For Hi Country Stables Corporation, Defendant, Counter Claimant: Kenneth H. Lyman, Malcolm S. Mead, Hall & Evans, LLC-Denver, Denver, CO.

For Alva Messer, Counter Defendant: Donald L. Salem, Michael G. Bryan, Feldmann Nagel, LLC-Denver, Denver, CO.

Judges: William J. Martinez, United States District Judge.

Opinion by: William J. Martinez

Opinion

AMENDED ORDER DENYING IN PART AND GRANTING IN PART MOTION FOR SUMMARY JUDGMENT

This matter is before the Court on Defendant’s Motion for Summary Judgment. (ECF. No. 41.) Plaintiff Alva Messer (“Plaintiff”) has filed a Response to this Motion (ECF No. 42.) and Defendant Hi Country Stables Corporation (“HCS” or “Defendant”) has filed a Reply. (ECF No. 45.) The Motion is ripe for adjudication.

Having reviewed the briefs and the relevant portions of the record, the Motion for Summary Judgment is granted in part and denied in part.

I. BACKGROUND1

A. Factual Background

On July 16, 2009, Plaintiff Alva Messer purchased a guided horseback ride from Hi County  [*2] Stables. (ECF No. 41 at 3.) Defendant HCS operates commercial horse-back riding at Glacier Creek Stables in Rocky Mountain National Park (“RMNP”). (ECF No. 41 at 7.) HCS is one of two equestrian companies owned by Rex Walker. (Id.) The other equestrian company is Sombrero Ranches, Inc. (“SRI”). (Id.) Before beginning any guided horseback ride, both companies require customers to sign an exculpatory contract, titled “Release” (hereafter “the Release” or “Release Forms”). (Id.) The Release Forms for HCS and SRI are identical, except for the name of the company being released from liability. (Id. at 4.) The Release Forms for HCS and SRI are printed in tablets containing 100 tear-away forms per tablet. Once printed, the printing company delivers the tablets to the offices of HCS and SRI. (Id.)

At the start of the 2009 riding season, one tablet of Release Forms labeled SRI was placed in a box of office supplies for delivery to HCS. (Id. at 5.) For reasons that are unexplained by Defendant, those same Release Forms—which Released SRI from liability—were used by HCS at Glacier Creek Stables on July 16, 2009. (Id. at 5; see also, Exh. C, Walker Dep. at 29:13 – 30:5.)

Typically, when customers  [*3] arrive at HCS, they are informed that they must sign a Release. (Id. at 6; Exh. D, Marshall Dep. at 29.) Amongst other employees at HCS, Dallas Marshall informs customers that they are required to sign the Release and “mark their riding ability.” (Id.)

When the Messers arrived at HCS on July 16, 2009, Marshall followed her normal practice and informed the Messers of the Release. (Id.) She also requested that they indicate their riding ability, which Plaintiff did. (Id.) Following this, and before commencing the guided horseback ride, Plaintiff signed the Release. (Id.) The Release expressly provides that the customer “understands. . .the specific risks. . .arising from riding a horse. . .and that the [customer] nevertheless intentionally agree[s] to assume these risks.” (ECF No. 41, Exh. A.)

After signing the Release, Plaintiff entered the corral where she was assigned her horse before commencing the trail ride. (Id. at 8; see also, Exh B, Alva Messer Dep. at 35:16-24). The wrangler who led the guests on Plaintiff’s trail ride was Terry Humphrey. (Id.)

Plaintiff encountered problems with her saddle during the trail ride which required adjustment by Plaintiff and Humphrey. (ECF No. 41,  [*4] Exh. B, Alva Messer Dep. at 49:1 – 50:1; Exh., Humphrey Dep. at 44:18-25; 45:7 – 46:1; 47:13-22; Exh. F, Donald Messer Dep. at 22:10-17).2

At the midway point, the Messer group stopped to take a rest break. (ECF No. 41, Exh. B, Alva Messer Dep. at 47:10-20). Plaintiff encountered further problems with her saddle—including slippage of the saddle to the horse’s right. (ld. at 50:2-9)

Sometime later, as Plaintiff’s horse was stepping down a “rock stair” in the trail, Plaintiff fell off the right side of the horse (the “Incident.”) (ECF No. 42, Exh. E, Humphrey Dep. at 54:15- 55:10; Exh. F, Donald Messer Dep. at 27:1- 28:6.) Plaintiff allegedly sustained serious injuries and economic loss resulting from the Incident. (ECF No.1 at ¶¶ 14 and 57.)

II. LEGAL STANDARDS

Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A fact is “material” if under  [*5] the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997). In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)). With this approach of resolving factual ambiguities against the moving party, the Court, as it should, thus favors the right to a trial. See Houston v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).

III. ANALYSIS

Defendant’s instant Motion seeks reformation of the Release and moves for summary judgment as to the Plaintiff’s claims—including: negligence; product liability; and, wilful and wanton conduct. If granted, Defendant argues that the Release should bar the negligence and product liability claims. The Court will first address  [*6] this issue.

A. Effect of the Release on the Negligence and Product Liability Claims

1. Reformation

Defendant seeks to reform the Release to reflect the true intent of the parties by substituting the name HCS for SRI. (ECF No. 41 at 22.)

Reformation of a contract is an “equitable remedy, and the formulation of such remedy rests with the court’s discretion.” May v. Travelers Property Casualty Co. 2006 U.S. Dist. LEXIS 80849, 2006 WL 3218852 at *2-3 (D. Colo. 2006, November 6, 2006). “Reformation of a written instrument is appropriate only when the instrument does not represent the true agreement of the parties and the purpose of reformation is to give effect to the parties’ actual intentions.” Maryland Cas. Co. v. Buckeye Gas Prod. Co., 797 P.2d 11, 13 (Colo. 1990).3 Mutual mistake of a contract provides grounds for reformation if the written instrument “does not express the true intent or agreement of the parties.” Segelke v. Kilmer, 145 Colo. 538, 360 P.2d 423, 426-27 (Colo. 1961).

An “essential prerequisite to a court’s power to reform a contract on the ground  [*7] of mutual mistake is the existence of a prior agreement that represents the actual expectations of the parties and provides the basis upon which a court orders reformation.” Maryland Cas. Co., 797 P.2d at 13. Prior agreement must be found from the evidence presented, which must be “clear and unequivocal”, and appropriate under the “circumstances.” Id.
See also, Segelke 360 P.2d at 426-27.

Here, Defendant asserts that the intent of the Release was to bind Plaintiff Alva Messer and Defendant HCS. Defendant contends that reference to SRI on the Release was a mutual mistake and that SRI should be substituted with HCS. The Court agrees. This holding is supported by Plaintiff Messer’s own testimony, which clearly reflects the parties’ common understanding of the signed document and shows acknowledgment by Plaintiff that the Release was, in fact, releasing HCS – not SRI. Such testimony is found in the following passage:

Q. You were told it was a release, correct?

A. Correct.

Q. And did you have any conception or understanding of what that meant?

A. Well, I assume a release is to release the people, you know, the stables.

Q. And when you were presented this at Hi Country Stables, was it your understanding  [*8] that you were releasing Hi Country [Stables]?

A. Correct.

(Messer Deposition at 32:3-22).

Because the above testimony is clear and unequivocal, the Court finds that it reflects the parties’ true intentions of the Release that the contract was between Plaintiff Messer and Defendant HCS.

Additionally, Plaintiff signed the Release at a location owned by HCS immediately before embarking on a trail ride guided by HCS employees. (ECF No. 41, Exh A.) Given that Plaintiff signed the document at HCS, it is difficult to see how the Release was intended to apply to any entity other than HCS.

Accordingly, the Court finds that there was mutual mistake at the time the Release was entered into. Mutual intent of the parties was to enter into an agreement whereby HCS would be released from certain claims. This provides the equitable basis to grant the relief. The Court orders that the name “Sombrero Ranches, Inc.” (SRI) be deleted and substituted with “Hi Country Stables” (HCS) in the Release.

2. Application of Release to Plaintiff’s Negligence Claim

As the Court has found that the Release should be reformed, the next issue is whether the Release shields Defendant from Plaintiff’s negligence claim. For the  [*9] reasons below, the Court concludes that it does.

To determine whether the Release bars Plaintiff’s negligence claim, the Court must consider four factors: (1) the existence of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of the parties is expressed in clear and unambiguous language. Jones v. Dressel, 623 P.2d 370, 376 (Colo. 1981).4

As to the first factor, Colorado law is clear that businesses engaged in recreational services do not perform services that implicate  [*10] a public duty. This favors Defendant’s position as to the validity of the Release. Chadwick v. Colt Ross Outfitters, Inc., 100 P.3d 465, 469 (Colo. 2004).

With respect to the second factor, the Court similarly finds for Defendant because horse-back riding is “not an essential service.” Hamill v. Cheley Colorado Camps, 262 P.3d 945, 949-50 (Colo. App. 2011) Horse-back riding is one of choice, not necessity.

As to third factor, this also cuts in favor of Defendant since there is no evidence to suggest that the Release was entered into unfairly. Instead, Plaintiff signed the Release “in consideration for the opportunity” to ride the trail led by HCS wranglers. (ECF No. 41, Exh A.) Plaintiff also indicated her riding ability. This suggests that she had ample time to review the Release and become familiar with its conditions. It is these facts, amongst others, that rebut any notion that the Release was unfair. Bauer v. Aspen Highlands Skiing Corp., 788 F. Supp. 472, 474-475 (D. Colo. 1992).

With respect to the fourth factor, the Court looks to the language of the Release to elicit its intent. The Court must determine “whether the intent of the parties was to extinguish liability and whether  [*11] this intent was clearly and unambiguously expressed.” Heil Valley Ranch, Inc. v. Simkin, 784 P.2d 781, 785 (Colo. 1989). Here, the test is met since the Release specifically uses the word “negligence” throughout the document. Reference to the word negligence expressly indicated that HCS would not be liable for such claims. Also, like the release in Jones, the Release in this case similarly points to the “specific risks” of property and personal injury damage that may “arise out of negligence.” Jones, 623 P.2d at 376. Such language serves to reinforce the intent of the Release and thatPlaintiff agreed to “assume such risks” during the course of the HCS led trail-ride. (ECF No. 41, Exh. A.)

In sum, the Court concludes that the Release shields Defendant from Plaintiff’s negligence claim. To the extent that Defendant’s Motion is directed towards that claim, the Motion for Summary Judgment is granted.5

3. Application of the Release to Plaintiff’s Strict Product Liability Claims

In addressing whether the Release applies to Plaintiff’s product liability claims, the Court finds this result is controlled by existing case law: Boles v. Sun Ergoline, 223 P.3d 724, 727-728 (Colo. 2010). That case held that an agreement releasing “a manufacturer from strict products liability for personal injury, in exchange for nothing more than an individual consumer’s right to have or use the product, necessarily violates the public policy of this jurisdiction and is void.” Id. (emphasis added). The Court holds that this passage has equal application here. As distinct from the negligence claim, Boles provides that the Release does not shield Defendant from the strict product liability claims.

Alternatively, Defendant argues that the broad language of the Release covers product liability claims.  [*13] Clause 2 provides: “that [the Customer] know[s] and understand[s] that horse riding . . . risks of . . . including the risk that [HCS]. . . may act negligently in . . . preparing or maintaining the horse . . . equipment or premises . . .” (ECF No. 41 Exh A.) Nothing in Clause 2 suggests that the Release covers claims which involve “leasing” or “manufacturing” saddles used in conjunction with Defendant’s trail rides, which would give rise to a products liability claim. Because exculpatory agreements are strictly construed against the party seeking exception, Defendant’s argument that the Release bars this claim must fail. Barker v. Colorado Region-Sports Car Club, 35 Colo. App. 73, 532 P.2d 372, 377 (Colo. App., 1974.)6

Accordingly, Plaintiff’s product liability claims are not barred by the HCS Release.7

B. Merits of the Product Liability Claims

Defendant also moves for summary judgment on the merits of Plaintiff’s product liability claim. In these claims, Plaintiff alleges (1) that HCS leased a defective saddle to Plaintiff by placing it in the “stream of commerce” and (2) that HCS manufactured a defective saddle that was used by Plaintiff (ECF No. 41 at 35; ECF No. 25 at ¶ ¶ 36-55.)8 Defendant offers two alternative arguments below as to why grant of summary judgment is justified with respect to these claims. The Court will address each in turn.

1. Horse-Back Riding by HCS is a Service and Does Not Give Rise to Products Liability

Defendant contends that summary judgment should be granted on Plaintiff’s product liability claims because the primary purpose of the contract was the provision of a service—not a product. This, Defendant contends, does not give rise to liability in tort. (ECF No. 41 at 37.) See, Yarbro v. Hilton Hotels, 655 P.2d 822, 828 (Colo. 1982)

To buttress its position, Defendant relies on Kaplan v. C Lazy U Ranch, 615 F. Supp. 234 (D. Colo. 1985). There, Judge John L. Kane of this District Court refused to treat “a saddled horse, or a ride on a horse with a saddle” as a product. Id. at 238. Judge Kane held that it was incongruent with strict product liability doctrine and cited several cases that have refused to extend the concept of strict liability to “persons rendering services.”9
Id. at 238 n.3. Defendant asserts that Kaplan has equal application here.

Plaintiff seeks to distinguish Kaplan by making specific reference to “SADDLE EQUIPMENT” in the Complaint. (See ECF No. 25 at ¶ ¶ 36- 51.) Plaintiff seeks to separate the saddle from the horse, and attempt to succeed on that basis.

The Court finds Kaplan persuasive. Like that case, the Court holds that a saddle (on a horse) is not a product—particularly in the context of horse-back riding services. The Court further finds Plaintiff’s distinction is misplaced because it fails to appreciate that the saddle was incidental to the primary purpose of the contract. Plaintiff entered into a contract for a guided five-hour horse back ride through RMNP. This service primarily relied upon a horse (which is not a product) and a saddle (which incidental to that service).10 Without a product, the product liability claims cannot succeed. Yarbro 655 P.2d at 828.

Because the saddle was only incidental to the contract for services, Plaintiff has failed to show a “trial  [*17] worthy” issue as to her product liability claims. Harper v. Mancos Sch. Dist. RE-6, 837 F.Supp.2d 1211, 1223-24 (D.Colo.2011).

2. Use of the Saddle Did Not Constitute a Lease

In the alternative, Defendant argues that summary judgment is warranted on Plaintiff’s product liability claims because it is not a “seller”of a product. That is, Defendant does not fall within the definition of “seller” under the statute because Defendant is not a “lessor” of products, nor a “manufacturer”. See generally, C.R.S. § 13-21-401; Hidalgo v. Fagen, Inc., 206 F.3d 1013, 1018 (10th Cir. 2000).11 Again, the Court agrees.

Contrary to Plaintiff’s position, the Court finds that Defendant does not “lease” saddles to its customers. Plaintiff signed a Release “in consideration for the opportunity to ride” a horse through RMNP. (ECF No. 41, Exh A.) The “opportunity to ride” does not create a lease. Its use is too short. Nor does it constitute ownership of the saddle itself.

Moreover, HCS cannot be considered a manufacturer because it does not manufacture saddles. (ECF No. 41, Exh. G, Humphrey  [*18] Dep. at ¶11; Exh H, Walker Dep. at ¶ 8.) Plaintiff argues that the “offside billet [of the saddle] is a product and that it became defective while in the course of it distribution from the original manufacturer through Defendant to her as the consumer.” (ECF No. 42 at 34-35). The Court treats this as an admission that Defendant never manufactured the billet. It also supports the finding that no product is involved in the present case.

Plaintiff has failed to show a genuine issue of fact as to whether Defendant leased or manufactured a saddle. Thus, Defendant’s Motion as to both of the product liability claims is granted.

3. Plaintiff’s Argument re Blueflame Gas

Plaintiff argues that Defendant placed a defective saddle “in the course of the distribution process” and is, therefore, liable for product liability. (ECF No. 42 at 33. (emphasis added.)) In support, Plaintiff heavily relies on Blueflame Gas, Inc. v. Van Hoose, 679 P.2d 579 (Colo. 1984). There, the defendant purchased propane from Diamond Shamrock. Defendant then transported and sold the propane directly to residential customers. A gas explosion occurred at a residential home. The plaintiff claimed, inter alia, strict liability  [*19] based Defendant’s failure to odorize the propane, making it a defective product. The Supreme Court held that a defective product must have arisen at the time of manufacture or “in the course of the distribution process” to the plaintiff. Id. at 590.

The Court is not compelled to find in Plaintiff’s favor based on Blueflame.12 The saddle in this case was not sold to Plaintiff. The saddle was not part of a distribution process. And, unlike the customers in Blueflame, the Court finds that Plaintiff is not permitted to pursue her product liability claim based on a “distribution process” theory.

Therefore, in addition to the reasons addressed above, Plaintiff’s reliance on Blueflame does not save her product liability claims from summary judgment.

C. Merits of the Wilful and Wanton Claim

Plaintiff’s claim for wilful and wanton conduct is trial worthy. First, a waiver cannot release wilful tortfeasors (alleged or otherwise). The Release has no bearing  [*20] on this claim. Barker v. Colorado Region Sports Car Club, 35 Colo. App. 73, 532 P.2d 372, 377 (Colo. 1974).

Second, willful and wanton conduct requires a mental state “consonant with purpose, intent and voluntary choice.” Brooks v. Timberline Tours, 127 F.3d 1273, 1276 (10th Cir. 1997). Because key facts going to this mental state are disputed, Defendant is not entitled to judgment as a matter of law. For example, Plaintiff contends that Humphrey did not perform the number of saddle “checks” he asserts. (Alva Messer Dep. at 43:4-44:18; 48:3-11; 48:21-49:17.) Plaintiff also disputes whether Humphery noticed the “saddle rolling to the right” during the trail ride. (Id.) These examples reflect material facts ripe for jury determination. If the jury credits Plaintiff’s testimony on these points, it could reasonably find that Defendant’s actions were wilful and wanton.

The Court finds that Plaintiff has shown a genuine dispute of material fact as to her wilful and wanton conduct claim. As to this claim, Defendant’s Motion for Summary Judgment is denied. See Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001).

III. CONCLUSION

Based on the foregoing, the Court hereby ORDERS as follows:

1. Defendant’s  [*21] Motion for Summary Judgment (ECF No. 41) is GRANTED IN PART and DENIED IN PART;

2. Defendant’s Motion for Summary Judgment is GRANTED as to Plaintiff’s claims for negligence and product liability;

3. The Clerk shall enter judgment in favor of Defendant on Plaintiff’s negligence and product liability claims;

4. Defendant’s Motion for Summary Judgment is DENIED as to Plaintiff’s wilful and wanton claim; and

5. Trial will proceed solely on Plaintiff’s willful and wanton claim, as previously scheduled, on March 11, 2013.

Dated this 8th day of January, 2013

BY THE COURT:

/s/ William J. Martinez

William J. Martinez

United States District Judge


Manufacturers Checklist for California Proposition 65

  1. Determine what chemicals are found in all of your products.
    1. Look at your SDS (formerly MSDS) sheets. US manufacturers are placing California Prop 65 info on their SDS sheets. It should say whether or not the chemical needs to be listed as a California Prop 65 chemical.
    2. If the SDS sheets are not available:
      1. Contact your manufacturers and get SDS sheets to avoid OSHA issues.
      2. Contact your manufactures.
        1. Confirm that their products do not contain any chemicals on the California Prop 65 list of chemicals: https://oehha.ca.gov/proposition-65/chemicals
        2. Get an agreement from them that if their product does contain one of the chemicals on the list or someone states that your product containing their product contains the chemicals they will either:
          1. Indemnify you
          2. Take over the litigation or claims and hold your harmless.
    3. If your manufacturer does not know or is not cooperating.
      1. Find a new manufacturer
      2. Send the product to a lab for testing
        1. I am recommending Act Labs: https://act-lab.com/
          1. Contact
            1. Devin Walton: 970 443 7825 dwalton@ad-Iab.com
            2. Michael Baker: (310) 607-0186 ext. 730 mbaker@act-lab.com
            3. Phil Bash: 562 470 7215 info@act-lab.com
          2. I get nothing from Act Lab for the referrals. (They promise me they’ll get me a beer at Interbike, but it will be a cheap one probably!)
        2. You need two things from a testing lab.
          1. You have to trust them.
          2. You have to be able to count on them in court if necessary to back up their results.
        3. I trust Act Lab. They know what they are doing, and they enjoy standing behind their results.
          1. They have testing facilities in the US and China.
  2. Based on your findings
    1. If you have chemicals in some products create the warning label for one of the chemicals found and place it on the product where the consumer can see the label before purchasing.
      1. Place the warning label on your website
      2. Place the warning label in your catalog
      3. Notify all retailers, in and out of California, of the products that must have a warning label on them.
        1. Supply the warning label to those retailers in California carrying products requiring the warning.
    2. If your product does not require a warning label.
      1. Have a beer.
  3. When does California Prop 65 not apply.
    1. If your company has ten of few employees, you do not have to post warnings on the products, however, I still would, see below.
    2. If your products containing the chemicals on the list were manufactured prior to August 30, 2018 you do not have to place the warning label on the product, but I still would, see below.
  4. Why CYA if you don’t have to.
    1. The cost of proving you don’t qualify is going to exceed the cost of complying.
      1. Attorneys and consumers cannot read UPC codes to determine the date of a manufacture.
        1. The cost to you of proving the manufacturing date is going to take time to show how the UPC code shows the manufacturing date. You may also have to supply additional documentation to support this information.
      2. Attorneys and consumers do not know how many employees you have.
        1. Unless you want to send copies of your payroll to law firms proving that you have less than ten employees is nearly impossible.
    2. The cost of proving you do not need the warning label on your product is much greater than the cost of just placing the warning label on the product.
  5. Is the warning label going to stop sales?
    1. California Consumers will not care about the warning label; it is going to be on everything they buy.
      1. Non-California consumers are going to get used to seeing it eventually, and they won’t care.
        1. I have one client shipped a product to Texas with the California warning label and had the consumer return the product because of it. Loss of one sale, that is a lot cheaper both in money and time than a lawsuit from California.

Additional Reading or Links

California Proposition 65 is a nightmare for manufacturers and as usual, manufacturer bad dreams are felt by retailers.    https://rec-law.us/2sKLYXA

Every Manufacturer worldwide selling in California must meet these new Labeling Requirements. New California Proposition 65 warnings will become effective in one year.    http://rec-law.us/2Dni4R2

Downloads

New California Proposition 65 warnings & Retailers II

California Proposition 65

CA Prop 65 Chemical list 5.18

California Proposition 65

California Prop 65 Website

Chemicals Considered or Listed Under Proposition 65    https://rec-law.us/2mCuoC8

About Proposition 65    https://rec-law.us/2M51ULV

New Proposition 65 Warnings    https://rec-law.us/2M6YqbH

If You Need Help

Information and Agreement to Review Your Products and Product Information Foreign Imports    https://rec-law.us/2M8hExw

Information and Agreement to Review Your Products and Product Information Foreign Imports    https://rec-law.us/2M8hExw


SFIA Partners with World Federation to Promote Global Product Labeling Database

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State laws that affect the relationship between a manufacturer and a commissioned independent sales representative

You need to make sure you understand the law if you are a manufacturer or an independent sales representative. For this chart, the following definitions shall apply.

 

Referenced in a Statute as:

Referred to Here as:

Manufacturer, Principal or Employer

Mfg.

Commissioned Sales Person, Wholesale Sales Representative, Sales Representative, Employee (Iowa)

Rep

Contract

K

The Headings used are defined or explained as:

State: This is the state where the law is applicable. Most of the statutes, however, say that a rep can sue for unpaid commissions in this state for money owed by the manufacturer in other states. Eleven states require a written contract between the Mfg. and the Rep. Three states probably require a written contract between a Mfg. and Rep. All states say that a request to pay a person a commission for a sale is a contract.

Statute Name & Number: This is the name of the statute and number of the statute. This is always linked to the statute.

K Required: This means the burden is on the Manufacturer to create a written contract. Many of the statutes require not only a signature of both parties but proof in the form of a receipt that the rep has received a copy of the contract.

Written K Controls (except non-payment issues): If there is a dispute or the written contract is different from the statute the written contract controls the payment of commissions upon termination.

Other K Requirements: Any special or unique issues in the statute that may be of importance.

Pay upon Termination: This is what the statute requires as far as commissions paid upon termination of the contract with the Rep.

Damages: If the Rep is not paid as per the contract or the statute, this sets forth the damages that a rep can recover for non-payment. Most states this is a factor of the commissions owed, which can be as much as four times the commissions owed. Iowa, Michigan, Minnesota and Missouri have more complicated ways of determining damages based upon the time until paid or other ways to calculate the damages.

Most states allow a rep, if successful in a suit to recover unpaid commission’s damages in excess of the commissions owed. In several cases that amount totals four times the commissions owed. If the rep is successful in recovering damages, the rep can also recover attorney fees and court costs.

Eight states allow the Mfg. to recover attorney fees and court costs if the lawsuit filed by the Rep was frivolous. Frivolous in a legal context means there was no basis for the suit. Have a claim and losing it for some reason, is not frivolous.

Most states require commissions that were earned but not due until after the termination of the Contact between the Mfg., and the Rep must be paid to the Rep.

Court Costs & Atty Fees: Either the Rep or in a few cases, the Prevailing party (winner) can recover court costs and attorney’s fees if they successfully sue for unpaid commissions.

Suit brought in a state of Rep Choice: This statute states that even though the Mfg. may not have a business location within the state, which would normally be needed to establish venue and jurisdiction over the manufacturer, the statute provides the necessary venue and jurisdiction. That means the manufacturer can be brought to suit in that state.

K can waive the statute: This means that a contract between the Rep and the Mfg. cannot waive parts of the statute, specifically the requirement on how commissions are to be paid on termination, damages, attorney fees and costs and whether and jurisdiction and venue are established.

Misc.: More unique or important sections of the statute you should know about.

 

This information is here as a starting point. Contact your attorney for additional information.

Click here to download a copy of this chart

27 state laws and short interpretations are listed below.

State Statute Name & Number K Required Written K Controls (except non-payment issues) Other K Requirements Pay upon Termination Damages Court Costs & Atty Fees Suit brought in state of Rep Choice K can waive statute Misc
Alabama Alabama Code Annotated § 8-24-1 Maybe§ 8-24-2 Yes§ 8-24-2 Contract must set forth how commission calculated and to be paid. Mft must provide copy of contract to rep§ 44-1798.01 30 Days after termination30 Days post termination§ 8-24-2(c) Three times damages§ 8-24-3 Reasonable Attorney fees and Costs§ 8-24-3 Yes§ 8-24-4 No§ 8-24-5 Rep can bring all claims against mfg in this action§ 8-24-5
Arizona Arizona Revised Statutes § 44-1798.01 Yes§ 44-1798.01 A Rep must receive a signed copy of the contract and sign a receipt acknowledging receipt of signed copy§ 44-1798.01 B Paid within 30 days§ 44-1798.02 A14 days on commissions due after termination§ 44-1798.02 B Three times the unpaid commissions owed§ 44-1798.02 C Reasonable attorney fees and costs§ 44-1798.02 D Final Settlement null & void unless paid in full§ 44-1798.02 F
Arkansas Arkansas Code of 1987
4-70-301
Yes4-70-302(a) Method of computation and payment must be in written contract4-70-302(a)Rep must receive copy of contract 4-70-302(b) If not written contract, all commissions must be paid within 30 days after termination4-70-303 3 times damages4-70-306 Reasonable attorney fees and costs4-70-306 Yes4-70-302(c)4-70-304 Waiver of statute is void4-70-305
California California Codes Annotated § 1738.10Independent Wholesale Sales Representatives Contractual Relations Act of 1990§ 1738.11 Yes§ 1738.13(a) Commission Rate, Payment dates, Territory, Territory Exceptions, ChargebacksRep must be given a copy of the contract, sign it and sign a receipt acknowledging receipt of the signed contract§ 1738.13(b) Treble DamagesFailure to pay or Failure to have written contract§ 1738.15 The Prevailing Party can recover Reasonable Attorney Fees & Costs§ 1738.16 Yes§ 1738.14 No§ 1738.13(e) Rep must receive written info of all orders, customer name and invoice numberCommission rate on each order§ 1738.13(c)
Colorado Colorado Revised Statutes 12-66-101 Probably§ 12-66-103 Treble damages12-66-103(1) Prevailing Party receives Reasonable attorney fees and costs Yes12-66-102
Illinois Sales Representative Act. Illinois Compiled Statutes Annotated § 820 ILCS 120/0.01. 13 days after termination and 13 days if commissions become payable after termination§ 820 ILCS 120/2 Exemplary damages of 3 times commissions owed§ 820 ILCS 120/3 Reasonable attorney fees and court costs to rep§ 820 ILCS 120/3 No§ 820 ILCS 120/2
Indiana Indiana Statutes Annotated 24-4-7-0.1 Must be paid within 14 days24-4-7-5(a) Exemplary Damages Three times the commissions owed24-4-7-5(b) If exemplary damages awarded, the sales rep receives reasonable attorney fees and costs24-4-7-5(c)If suit is frivolous, the mfg can receive reasonable attorney fees and costs 24-4-7-5(c) Yes24-4-7-6 No24-4-7-8 If you make an offer to pay commissions you cannot revoke the offer once the commissions are earned 24-4-7-7
Iowa Iowa Wage Payment Collection Law
Iowa Code 91A.1
5% per day for every day not paid91A.2 6 Yes if intentionally failed to pay91A.8 Only disputed amounts can be withheld, all non-disputed amounts of commissions must be paid91A.7
Louisiana Louisiana Revised Statutes § 51:441 Yes§ 51:442 A written contract supersedes statute on payment of wages§ 51:442 Rep must receive a copy of the contract§ 51:442 Per the contract or On the 30th working day after termination§ 51:443 Treble damages§ 51:444 Rep’s Attorney fees§ 51:444 Yes§ 51:445 A§ 51:445 C No§ 51:445 B Sales Rep can sue for all money owed under this statute.Statute does not prohibit other seeking other forms of relief§ 51:445 D
Maine Maine Revised Statutes Annotated § 1341 Unless otherwise in contract requires 14 days’ notice to terminate§ 1342 Payment within 30 days of termination§ 1343 Exemplary damages of 3 times commissions owed§ 1344 1 Reasonable attorney fees and costs§ 1344 1 Yes§ 1344 4 Yes§ 1343 If action was frivolous mfg can recover actual attorney fees and costs§ 1344 2
Maryland Annotated Code of Maryland
§ 3-601
Commissions must be paid within 45 days of termination§ 3-604 Can recover up to 3 times the commissions due§ 3-605(a)(1) Reasonable attorney fees and costs§ 3-605(b) Yes§ 3-606 Law cannot be waived§ 3-603 Rep must give mfg 10 days’
Massachusetts Annotated Laws of Massachusetts
Chpt 104 § 7
YesChpt 104 § 8 Commissions must be paid within 14 days of terminationChpt 104 § 8Commissions that come due after termination must be paid within 14 daysChpt 104 § 8 Willfully or knowingly fails to pay, rep can recover an additional 3 times the amount dueChpt 104 § 9 Rep can recover reasonable attorney fees and court costsChpt 104 § 9 Yes104 § 9 NoChpt 104 § 9
Michigan Michigan Compiled Laws § 600.2961 YesSec. 2961(e)(2) Commissions must be paid within 45 days of termination§ 600.2961(e)(4) Actual damages plus 2 times amount of commissions or $100K or whatever is less§ 600.2961(e)(5)(b) Rep can recover reasonable attorney fees and costs§ 600.2961(e)(5) No§ 600.2961(e)(8)
Minnesota Minnesota Statutes 181.13 Yes§ 407.912 3 days after termination181.145 Subd 2 Penalty of 1/15 per day not to exceed 15 days181.145 Subd 3 Yes181.171 Subd 3 Sales made before termination must be paid after termination181.145 Subd 5
Missouri Missouri § 407.911 Yes§ 407.912 Within 30 days of termination§ 407.912 Based on the time due till paid§ 407.913 Reasonable attorney fees and costs§ 407.913 Yes§ 407.914 No§ 407.915 Rep to be paid on commissions earned before termination but not due until after termination§ 407.912 2
Nebraska Nebraska Wage Payment and Collection Act Nebraska Revised Statutes Annotated § 48-1229 30 days after termination§ 48-1231(1) Court Costs and attorney fees of not less than 25% of damages§ 48-1231(1) Damages are increased if case appealed§ 48-1231(1)
New Hampshire Sales Representatives and Post-Termination Commissions New Hampshire Revised Statutes Annotated 339-E:1 Yes339-E:2 Commissions must be paid within 45 days of termination339-E:2 Exemplary damages of 3 times commission339-E:3 Reasonable attorney fees and costs339-E:3 Yes339-E:4 No339-E:2 & 339-E:6 Commissions must be paid on orders before termination§ 2A:61A-2If Sales Rep brings frivolous suit mfg. can recover attorney fees§ 2A:61A-3
New Jersey New Jersey Annotated Statutes
§ 2A:61A-1.
Must be paid within 30 days§ 2A:61A-2 Exemplary damages of 3 times amount of commissions owed§ 2A:61A-3 Actual and reasonable attorney fees and costs§ 2A:61A-3 Yes§ 2A:61A-5 No§ 2A:61A-6
New York New York Consolidated Laws
§ 190
Yes§ 191-b 1 Yes, K must be signed by both parties and kept on file at mfg. for 3 years§ 191 b Must be paid within 5 business days§ 191-c 1 Double damages§ 191-c 3 Prevailing party receives reasonable attorney fees and costs§ 191-c 3 Commissions must be paid at least monthly§ 191 cCommissions earned after termination must be paid§ 191-a (b)
North Carolina General Statutes of North Carolina § 66-190 Yes§ 66-190.1 30 days after termination unless rep commits malfeasance§ 66-191 2 times damages§ 66-192(a) Attorney fees actually and reasonably incurred and court costs§ 66-192(c) Yes§ 66-192(c) No§ 66-193 Commissions that come due after termination must be paid within 15 days§ 66-191
Oklahoma Sales Representatives Recognition Act Oklahoma Statutes Annotated § 675 Yes§ 677 1 14 days after termination14 days on commissions that come due after termination§ 678 A Prevailing party reasonable attorney fees and costs§ 678 B Yes§ 679 A No§ 679 B Rep can recover all claims in OK case against mfg§ 679 C
Pennsylvania Commissioned Sales Representatives Pennsylvania Statutes Annotated § 1471 Yes§ 1472 Yes§ 1475.1 14 days after termination§ 147314 days on commissions earned after termination§ 1474 2 times the commissions due§ 1475(a)(1) Cost of the suit and reasonable attorney fees§ 1475(a)(2) No§ 1476 If case is frivolous then mfg can recover reasonable attorney fees and costs§ 1475(b)
South Carolina Payment Of Post-Termination Claims To Sales Representatives South Carolina Code of Laws § 39-65-10 Seems to be.§ 39-65-20 Yes§ 39-65-20 Paid as terms of the contract§ 39-65-20 Commissions due plus 3 times damages§ 39-65-30(1) Actually and reasonably incurred attorney fees and court costs§ 39-65-30(2) Yes§ 39-65-50 No§ 39-65-70 If the suit brought by the Rep is frivolous the mfg may recover attorney fees and costs§ 39-65-40Rep may bring all actions against mfg in SC§ 39-65-60
Tennessee Tennessee Code Annotated § 47-50-114 Yes47-50-114 (b) (1) Yes§ 47-50-114(b)(1) 14 days after termination§ 47-50-114(b)(c) Mfg acting in bad faith liable for exemplary damages of treble the amount of commissions§ 47-50-114(d) Reasonable attorney’s fees and court costs§ 47-50-114(d) Yes§ 47-50-114(e) No§ 47-50-114(f) Commissions earned after termination must be paid within 14 days§ 47-50-114(b)(c)If action brought by Rep is frivolous mfg can recover attorney fees and court costs47-50-114(d)
Virginia Code of Virginia § 59.1-455 Yes§ 59.1-456 Yes§ 59.1-457 Per contract but not later than 30 days§ 59.1-457 No§ 59.1-458 Post termination commissions must be paid within 30 days§ 59.1-457
Washington Annotated Revised Code of Washington §49.48.150 Yes§49.48.160(1) Yes§49.48.160(1) Per contract but no later than 30 days§49.48.160(3) Yes§49.48.180 No§49.48.160(1)
§49.48.190
All commissions including commissions earned by not due must be paid upon termination§49.48.160
Wisconsin Wisconsin Statute § 134.93 Yes§ 134.93(3) Due upon termination§ 134.93(4) Exemplary damages 200% of the commission owed§ 134.93(5) 90 days written notice of termination must be given to rep§ 134.93(3)

If you are a manufacturer, distributor or importer hiring independent reps, make sure you have a contract that protects you from being sued in 27 other states.

If you are a rep, insist on a contract with every manufacturer you represent.

Either way, you both will be better off.

What do you think? Leave a comment.

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Copyright 2013 Recreation Law (720) Edit Law

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Indemnification agreements? What are you signing?

Suddenly, indemnification agreements are flying around the outdoor industry. Make sure you know what you are signing.

Indemnification agreements, either as part of another document or individually are being tossed around the outdoor industry. So far, they have all been written by non-attorneys. By that I mean they are written badly or by someone who does not understand what they are and how they work. Before you sign an indemnification agreement, you need to understand what you are signing and the ramifications of signing it.

An indemnification agreement is similar, not like, but similar, to an insurance policy. Most times an indemnification agreement says you will pay us (indemnify) for any money we spend because of your actions that have cost us money, including our costs and attorney’s fees.

An insurance policy is slightly different than indemnification policy for two reasons.

1.   An insurance policy is very specific on what if covers. If it is not written in the policy as something that is insured, then you will not get money.

2.   You pay for a policy. The amount of money you pay is based on the risk; the greater the risk, the more money you pay for the policy.

Indemnification agreements in the past have been narrow and focused on specific issues that the parties negotiate. The indemnification agreement said if something you did brings us into a lawsuit, you have to reimburse us for our costs if we are sued because of what you did. Indemnification agreements were written into contracts as part of the overall deal.

An Example would be:

A manufacturer makes a product with a defect, and the retailer is sued because of the defect by the consumer who purchased the product. The liability issues are set forth because the agreement says the retailer must be sued or there must be liability or a claim.

First Problem: Consideration

For a contract to be valid there must be consideration. Consideration is a benefit flowing from one party to the other party. Normally, consideration is money. If a contract and a course of dealing exist between two parties, if one party now wants an indemnification agreement signed, there must be new consideration. You have to pay for the new agreement to be a contract and to be binding. No consideration, no contract.

Second Problem: Overly Broad

The indemnification agreements I am seeing recently have been very broad and cover everything. There are major issues with a document this broad because it is impossible to comply with. By that I mean there are realistic limits to what can be indemnified. The major item controlling indemnification agreements is money. If you don’t have a bank account with enough cash in the account to cover the indemnification bill when it comes due, why sign the agreement to begin with?

1.   You can only sign what you can pay for.

Unless you are dealing with broken products (replacement) or fixed amounts (breach of contract), you can only sign an indemnification agreement that has limits that you can afford. If you sign an indemnification agreement knowing there are no way you can pay for it, you are creating additional problems; misrepresentation and fraud (see below). If you can’t pay the bill when it comes due, you will either file bankruptcy and or go out of business.

Make sure you know how much indemnification will cost you and whether or not you can deal with the bill. If you don’t have the cash, then you better have an insurance policy.

2.   You can only sign what your insurance policy says it will cover.

99% of the time, an indemnification agreement is really based on your insurance company stepping up and writing a check. The insurance company does that because:

A.   There is a legitimate claim covered by the policy.

B.   The claim is within the limits of the policy.

C.  The insurance company knew about the indemnification and agreed to it in advance! (Oh?)

If your policy is not broad enough, does not cover everything covered in the indemnification, you are again on the hook yourself. Your commercial policy is very different from your homeowner’s policy. Your commercial policy says it covers everything on the list of covered items in the policy. If the claim is not on the list, you have no insurance coverage.

Your insurance policy is written to pay claims, not necessarily contracts. If the indemnification is not based on a claim or legal liability, your insurance policy may just ignore the issue. The insurance company is not contractually required to pay what is not covered in the policy.

3.   If your insurance company does not know about the indemnification and agree to it, you still may not have coverage. You are back to writing a check.

Your insurance company in many cases can cover indemnification; however, many policies require knowledge in advance or in some cases need to approve indemnification. Sending an indemnification claim to an insurance company based on a contract you signed without the insurance company knowing about the indemnification agreement in advance is an easy way to get the claim denied or the policy non-renewed the next time it comes up for renewal.

4.   Signing an indemnification agreement without the ability to back it up is a misrepresentation in some states.

Misrepresentation pierces the corporate veil making you personally liable for the claims. (The sole exception to this MAYBE if you are an LLC; however several states have not ruled that an LLC can be pierced for misrepresentation and fraud.) Simply put, you sign a contract knowing you cannot complete the contract that is called misrepresentation and maybe fraud. Misrepresentation and fraud on the part of the owner of a corporation, when dealing with monetary issues, is a way to pierce the corporate veil. Piercing the corporate veil is one way of making your personal assets liable for the claims against your business.

This might be a stretch in some cases, but it is clearly within the realm of possibilities, especially if you have a lot of personal assets. Attorneys and insurance companies work harder if they know there is a payoff.

If you can’t fulfill the indemnification agreement, and you have no insurance to cover it, you better not sign it.

5.   You should not indemnify someone for something that you are not liable for.

This is simple. If you don’t owe the money, why would you say you owe the money? Many of these agreements are asking for indemnification for issues that you have no legal liability for. It is hard to be liable for how a product is used if they do not read the instructions. An example would be an employee of a retailer store is demonstrating your product without reading the instructions, attending the tech clinic or understanding the product. During the demonstration to the consumer, he injures the consumer.

Why would that be your fault and why should you pay for it? Yet a few indemnification agreements I’ve read lately would require the manufacture to pay for the injuries.

As a manufacturer you are not legally liable for that claim. It is not your fault; you were not negligent. However, the indemnification agreement you signed said you would pay for any claim based on your product. The consumer has a claim against the retailer, because of the product, but not because the product was defective. The retailer is solely liable for the claim, and you should not be.

A.  You should only indemnify someone for what you are responsible for.

Conversely, you should agree to indemnify someone for what you are liable for. If it is your fault, you should pay. Many indemnification agreements are being written because the cost of getting a manufacturer or liable party to pay up exceeds the amount owed. I understand that reasoning, and it is sound and smart.

A good example of these is: you are running an event on property owned by a third party. You accept the money for the event, set up the course, review the entrants and totally control the event. The landowner’s sole responsibility in the event was providing the land and pointing out any known or reasonably foreseeable dangers on the land.

If someone is hurt in the event and sues the landowner, the event promoter should protect the landowner.

B.  You should not indemnify someone for what you do not have control over.

If the landowner is told by the event promoter that he cannot tell the event promoter how to run the event, the landowner should not be liable. The landowner has no control over the event. Therefore, the landowner should not be liable.

The manufacturer can only be liable for the product. If the sales person working for the retailer tells the consumer that this product will save their lives and prevent all injuries contrary to the manufacturer’s warnings, manual, instructions and marketing, then the manufacturer should not pick up the tab for the injured consumer. The manufacturer had no control over the salesperson, did not even know the salesperson existed, and therefore, should not be liable for someone they have no control over.

A manufacture could be liable if they have not disclaimed the warranty of merchantability or the warranty of fitness for a particular purpose, but that is for another article.

C.  You should only indemnify someone for what your insurance company agrees to indemnify someone for.

That means you should only indemnify someone for:

a.   What you can control.

b.   What you are liable for.

c.   What insurance policy says it will cover?

But they are my friends; they would never sue me based on the agreement!

They might not, but your friend may not always be in control of that agreement. Anyone who becomes a beneficiary or an owner of the contract can use the indemnification to sue you. The two best examples of this are:

A Bankruptcy Trustee: A bankruptcy trustee is an attorney whose job is to find every dime that may be owed to the bankrupt business. Any contract that has not been fulfilled, any invoice that has not been paid, and any indemnification agreement that may have money tied available, will be fair game. If the Bankruptcy Trustee can determine if the business that signed the indemnification agreement owes the bankrupt business money, the Trustee by law, must get the money back.

The Bankruptcy Trustee will sue in the name of the Bankrupt Company claiming indemnification for an earlier claim. You will think you are free and clear because the company you signed the indemnification agreement with filed bankruptcy. However, the Bankruptcy Trustee will come rowing back to the courtroom and hold you liable to the point of forcing you to file bankruptcy.

The Insurance Company under the Subrogation clause of an insurance policy believing the indemnification agreement allows them to collect from you. Every insurance policy has a subrogation clause. That means that the insurance company has the right to recover from anyone who caused the claim that the insurance company wrote a check for. Insurance companies will spend days looking for anyone who they can recover money from, and an indemnification agreement is a perfect opportunity. I would guess that 30% or more of the lawsuits in the US are insurance company subrogation claims.

Subrogation claims can be filed by worker’s comp accidents, car accidents, general liability or health insurance claims.

Again, the lawsuit will be in the name of the company you signed the indemnification agreement with, and that company has no choice. If the company does not cooperate with the insurance company, the original claim may not get paid. Insurance companies will finance the lawsuit, so there are no legal games to be played; they know what they want, and they understand the cost of getting it.

If you want Indemnification Agreements…. And you should then get them in a way that works for everyone.

Spending time money legal fees on an agreement that won’t be used or cannot be collected on is a waste of time.

1.   Be realistic.

a.   With you asking to indemnify for what

b.   What they can pay or what insurance they can purchase and afford.

c.   With what you need indemnified, with what someone other than you is legally liable for.

2.   Be prepared to offer one in return. Why should I sign yours if you are going to leave me out in the cold for any claim or liability you cause? Besides mutual indemnification, agreements take out the consideration issue if written correctly.

3.   Make sure it is signed by the right person. A corporation has officers. The board of directors of the corporation authorizes the officers to sign agreements for the corporation. An indemnification agreement is a big deal so make sure the person signing it has the authority to sign the agreement. Having a sales person or sales manager sign the agreement is a waste of trees.

4.   An indemnification agreement without a Certificate of Insurance or an Additional Insured document that is tied to the Indemnification Agreement, not just with it, is worthless.

The certificate of insurance must be legally tied to the indemnification agreement or both are worthless. There is no insurance to cover the indemnification and not money to indemnify the problem.

5.   Have an attorney write your indemnification agreement so it works.

One last point

Signing indemnification agreements may increase your insurance rates. Basically, instead of insuring you, your policy is not insuring dozens of other businesses and their employees. Your insurance company, if they continue to renew your policy, may increase your premium because the risk has increased.

(Insurance companies also do this based on the number of Additional Insured’s you issue and the coverage you make available to the Additional insured’s. Again, that is another article for another day.)

Indemnification agreements work, but only if written correctly and written with knowledge of how and why they work.

What do you think? Leave a comment.

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