In Clickwrap Agreements, are Liability Waivers Enforceable?


Enforceability of Clickwrap Agreements

If you have purchased software, you have undoubtedly encountered a clickwrap agreement. Clickwrap agreements are contracts between the software owner and the user. As you might imagine, the terms of those agreements are not negotiated by the users and are generally very unfavorable to the user/buyer of the software. Users may naturally wonder whether these onerous terms are enforceable.

Clickwrap agreements have routinely been upheld as enforceable by circuit and district courts.[1] A “clickwrap” agreement is an agreement where a customer affirmatively clicks a box on a website acknowledging receipt of and assent to certain contract terms before he or she is allowed to proceed. Id. Although assent by clicking “I agree” is often essential to the formation of a contract, it is not necessarily required.[2]

Clickwrap license agreements often contain several clauses that disfavor potential litigations. Specifically, clickwrap license agreements often contain:

  1. an exculpatory clause;
  2. indemnity clause; and
  3. limitation of liability clause.

Enforceability of Exculpatory Clause

An exculpatory clause is a contractual waiver of the right to sue executed before a loss occurs. The following is an example an exculpatory clause:

By purchasing and using this Product, you waive and release any claim for damages, indemnity, or reimbursement against the owner of this Product for any claims or fines imposed upon you for use of the Product.

The court in Schlobohm v. Spa Petite, Inc. developed the framework for evaluating the enforceability of an exculpatory clause.[3] In Schlobohm, the Minnesota Supreme Court held that an injured patron of a health club, by signing a membership contract with an exculpatory clause, validly waived her right to sue the health club.[4] In determining whether the clause was valid, the court analyzed the relationship between the parties, the nature of the bargaining transaction, and the type of loss for which liability is disclaimed.[5] The court held a liability release is unenforceable if it is either:

  1. ambiguous in scope[6] or purports to release a party from liability for intentional, willful, or wanton acts; or
  2. violates public policy.[7]

An exculpatory clause is ambiguous in scope when it is susceptible to more than one reasonable interpretation.[8] In examining ambiguity, courts follow traditional contract interpretation principles by analyzing the contract as a whole.[9] When the injury is caused by an accident involving an integral aspect of an activity governed by the release, the injury is presumptively within the scope of the release.[10]

Additionally, an exculpatory clause cannot release a party from intentional or willful misconduct. The Minnesota Court of Appeals has taken diverging approaches to whether an attempt to exculpate intentional misconduct results in the voiding of the entire clause or voiding only the portion of the clause attempting to exculpate intentional misconduct.[11]

Finally, the courts will not enforce an exculpatory clause where it violates public policy. A liability release violates public policy if there is either:

  1. a disparity of bargaining power between the parties to the agreement; or
  2. the type of service being offered by the benefited party is either a public or an essential service.[12]

A public or essential service includes a service “generally thought suitable for public regulation.”[13] Services considered suitable for public regulation have included “common carriers, hospitals and doctors, public utilities, innkeepers, public warehousemen, and employers and services involving extra-hazardous activities.”[14]

Enforceability of Indemnification Clause

An indemnification clause shifts future losses to one of the contracting parties regardless of fault.[15] A typical indemnification clause reads:

You agree to accept responsibility for your use of this Product and any consequence or fine imposed upon you by any government entity, third party, or search engine and to indemnify and hold harmless the owner of this product for any claims made resulting from your use of this Product.

The Minnesota Supreme Court in Yang v. Voyagaire Houseboats, Inc., established that indemnification clauses are to be strictly construed.[16] In Yang, the Court stated that “agreements seeking to indemnify the indemnitee for losses occasioned by its own negligence are not favored by the law and are not construed in favor of indemnification unless such intention is express in clear an unequivocal terms, or unless no other meaning can be ascribed to it.”[17] The Court stated also that it would not enforce an indemnification clause where it is contrary to public policy.[18] Therefore, an indemnification clause is only valid and enforceable where:

  1. the clause is clear and unequivocal; and
  2. does not operate contrary to public policy.

In order for an indemnification clause to be clear and unequivocal there must be:

  1. specific reference to negligence;
  2. express assumption of the negligence of another; and,
  3. clarity on the scope of the indemnity clause.

See the exculpatory clause section for a discussion of how the courts interpret the public policy requirement.

Enforceability of Limitation of Liability Clause

A limitation of liability clause is a provision that serves as a disclaimer to limit the amount of damages for which the contractor might be potentially liable. A typical limitation of liability clause reads:

[Y]ou agree that the owner of the Product’s liability to you for any claim of damages, under any theory, is limited to the fees paid by you for license of the Product. You agree that the foregoing limitation on damages liability is a term material to the price you are paying that is lower then would otherwise be offered to you without said term.

Limitation of liability clauses are not favored by the law and are strictly construed against the benefited party.[19] Therefore, their enforceability is analogous to the framework used in determining the validity and enforceability of an exculpatory clause.[20] See exculpatory clause section for discussion.

  • [1] Burcham v. Expedia, Inc., WL 586513 (E.D. Mo. Mar. 6, 2009) (citing Specht v. Netscape Comm. Corp., 306 F.3d 17, 22 n. 4 (2d Cir. 2002)); See also A.V. v. iParadigms, LLC, 544 F.Supp.2d 473, 480 (E.D. Va. 2008); DeJohn v. the.TV Corp. Int’l, 245 F.Supp.2d 913, 921 (N.D. Ill. 2003); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996) (upholding the enforceability of “shrinkwrap” agreements contained inside boxed and sold computer software).
  • [2], Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004).
  • [3]Schlobohm v. Spa Petite, Inc. 326 N.W.2d 920, 920 (Minn. 1982).
  • [4] 326 N.W.2d at 926.
  • [5] Id. at 923-26.
  • [6] Id.; see also Collins Truck Lines, Inc. v. Metro. Waste Control Comm’n, 274 N.W.2d 123 (Minn. 1979) (upholding an exculpatory clause because it had only a single reasonable interpretation).
  • [7] Schlobohm, 326 N.w.2d at 926.
  • [8] Collins, 274 N.W.2d at 127.
  • [9] Beehner v. Cragun Corp., 636 N.w.2d 821 (Minn. Ct. App. 2001).
  • [10] Malecha v. St. Croix Valley Skydiving Club, Inc., 392 N.W.2d 727, 731 (Minn. Ct. App. 1986).
  • [11] Compare Nimis v. St. Paul Turners, 521 N.w.2d 54, 57 (Minn. Ct. App. 1994) (holding the release of all claims caused by negligence or otherwise was an attempt to release intentional misconduct and voided the entire clause), with Ball v. Waldoch Sports, Inc. No. C0-03-227, 2003 WL 22039949, at *3 (Minn. Ct. app. Sept. 2, 2003) (holding any attempt to release intentional misconduct would result in voiding only the portion of the exculpatory clause which attempted to exculpate intentional misconduct).
  • [12] Schlobohm, 326 N.w.2d at 924.
  • [13] Id. at 926.
  • [14] Connolly v. Nicollet Hotel, 95 n.W.2d 657, 663 (1959).
  • [15] Id. at 923.
  • [16]Yang v. Voyagaire Houseboats, Inc. 701 N.W.2d 783, 791 (Minn. 2005).
  • [17] Yang, 701 N.W.2d at 791 (citing Nat’l Hydro Sys. V. M.A. Mortenson Co., 529 N.W.2d 690, 694 (Minn. 1995).
  • [18] Id. (citing Zerby v. Warren, 210 N.w.2d 58, 64 (1973).
  • [19] Nova Consulting Group, Inc. v. Weston, Inc. 2002 WL 418205 (Minn. Ct. App. Mar. 19, 2002).
  • [20] Id. at 13.