November 23, 2020 Practice Points

Is an Exculpatory Clause Valid and Enforceable under Maritime Law?

An exploration of circuit splits on the issue.

By David Y. Loh

The purpose of this article is to explore whether an exculpatory clause is valid and enforceable under maritime law—including whether a party may be fully exonerated from its own negligence.

Only certain contracts are maritime in nature. See S.C. State Ports Auth. V. Silver Anchor S.A., 23 F.3d 842, 846 fn. 3 (4th Cir. 1994) (“Contracts for wharfage, dockage and crane rental are maritime.”).

There is a split amongst the circuits as to whether exculpatory clauses in maritime contracts are enforceable. Compare Sander v. Alexander Richardson Invs., 334 F.3d 712 (8th Cir. 2003) (exculpatory clause in marine contract is enforceable unless there is a peculiarity in the relationship between the parties such as a monopoly or unequal bargaining power); Diesel "Repower," Inc. v. Islander Invs. Ltd., 271 F.3d 1318, 1324 (11th Cir. 2001) ("The limitation [in a red letter clause] must not absolve the repairer of all liability and must still provide a deterrent to negligence.") and La Esperanza de P.R., Inc. v. Perez y Cia. De P.R., Inc., 124 F.3d 10, 19 (1st Cir. 1997) ("Parties may not totally absolve themselves of all liability and, more substantively, the prospective wrongdoer's potential liability should be enough to deter negligence." (internal quotations omitted)), with Royal Ins. Co. of Am. v. S.W. Marine, 194 F.3d 1009, 1014 (9th Cir. 1999) ("Except in towing contracts, exculpatory clauses are enforceable even when they completely absolve parties from liability for negligence." (footnote omitted)) and Theriot v. Bay Drilling Corp., 783 F.2d 527, 540 (5th Cir. 1986) (applying federal maritime law and enforcing indemnity agreement that fully exculpated party from liability for its own negligence). We will address that issue shortly, but we turn first to the issue of whether the contract provision at issue was sufficiently clear to absolve the Yacht Club of liability for its own negligence, for it is universally agreed that exculpatory clauses, whether fully exonerating a party from its own negligence or not, must "be clearly and unequivocally expressed." Randall v. Chevron U.S.A., Inc., 13 F.3d 888, 905 (5th Cir. 1994) (internal quotations omitted). See also Edward Leasing Corp. v. Uhlig & Assocs., Inc., 785 F.2d 877, 889 (11th Cir. 1986) (recognizing that courts will enforce red letter clauses if "the contractual language at issue is clear and unequivocal and clearly indicates the intentions of the parties"); M/V Am. Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1488 (9th Cir. 1983) (holding parties to an exculpatory clause where the parties' intent is clear).

However, there are certain instances—for public policy reasons—where exculpatory clauses are never enforceable. See Bisso v. Inland Waterways Corp., 349 U.S. 85 (1955) (exculpatory clause in a towage contract is unenforceable because it violated public policy)

Whereas, pilotage exculpatory clauses are generally enforceable. See Sun Oil Co. v. Dalzell Towing Co., 287 U.S. 291 (1932) (exculpatory clause in private pilotage agreement between pilot and tow company exempted tow company from liability arising from pilot’s negligence).

Also, certain kinds of exculpatory clauses in ocean bills of lading are not enforceable pursuant to the Harter Act or the U.S. Carriage of Goods by Sea Act, 46 U.S.C. Sec. 30701, et seq. See Allied Chemical Inter. Corp. v. Companhia de Navegacao Lloyd Brasilero, 775 F.2d 476, 482 (2nd Cir. 1985).

The foregoing is not meant to be an exhaustive examination of this issue, just a way to point you in the right direction.

Fair winds, and following seas for all your future disputes.

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David Y. Loh

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David Y. Loh is a partner with KMA Zuckert in New York City, New York.

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