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is it time to change the exculpatory clause to cover even fraud January 15, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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is it time to change the exculpatory clause to cover even fraud
January 15, 2018
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is it time to change the exculpatory clause to cover even fraud
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    The Exculpatory Clause holds that the alarm company will not be liable for any breach of contract or negligence in the performance or non-performance of the contract.  Alarm companies need this provision and it is certainly one of the most important and prominent "protective" provisions.  The provision is consistently enforced throughout the country with few exceptions.  
    One of the more commonly accepted exceptions to the enforcement of the Exculpatory Clause is fraud.  We see "fraud in the inducement" claims in many alarm defense cases because claimants' counsel understands that the fraud claim may defeat the consequences of the Exculpatory Clause.  Fortunately, claiming fraud and proving it are too very different matters, and the fraud in the inducement claim rarely gets traction.  A case I just read peeked my interest to see if a change in the terminology of the Exculpatory Clause might help defeat the fraud claim.  This is the excerpt from the case that caught my interest:  [the case is not an alarm case]
        ".... the district court overlooked the fact that both Florida and Nevada prohibit a contractual waiver that exculpates a contracting party's fraudulent misconduct. See Oceanic Villas, Inc. v. Godson, 4 So. 2d 689, 690-91 (Fla. 1941) (holding that a contract provision cannot preclude a fraud claim unless the contract expressly states that it is incontestable on the ground of fraud);12 Burton v. Linotype Co., 556 So. 2d 1126, 1127 (Fla. Dist. Ct. App. 1989) (‘ “Fraud is an intentional tort and thus not subject to the cathartic effect of the exculpatory clauses found in contracts.’ ” (quoting L. Luria & Son, Inc. v. Honeywell, Inc., 460 So. 2d 521, 523 (Fla. Dist. Ct. App. 1984))); Lawyers Title of Nev., Inc. v. Bonar, 381 P.3d 633 (table), 2012 WL 1923697, at *2 (Nev. May 23, 2012) (holding that an exculpatory clause was ineffective to immunize liability for a knowing misrepresentation) (citing Restatement (Second) of Contracts § 195(1) (1981) (“A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.”))." 
    Did you notice this in the quoted language:
"See Oceanic Villas, Inc. v. Godson, 4 So. 2d 689, 690-91 (Fla. 1941) (holding that a contract provision cannot preclude a fraud claim unless the contract expressly states that it is incontestable on the ground of fraud)"
    "Unless the contract expressly states that it is incontestable on the ground of fraud".  So I looked up the case.  It's a Florida case, circa 1941.  OCEANIC VILLAS, Inc., v. GODSON 148 Fla. 454.  That case holds that:
    "That false and fraudulent misrepresentations as to past income, gross receipts or profits may constitute fraud on which rescission should be awarded is too well settled to be seriously questioned. ....To hold that by the terms of the contract which is alleged to have been procured by fraud, the lessor could bind the lessee in such manner that lessee would be bound by the fraud of the lessor would be against the fundamental principles of law, equity, good morals, public policy and fair dealing. It is well settled that a party can not contract against liability for his own fraud. .......We do not mean by this, however, to hold that a contract may not be made incontestable by the terms thereof on the ground of fraud. We recognize the rule to be that fraud in the procurement of a contract is ground for rescission and cancellation of any contract unless for consideration or expediency the parties agree that the contract may not be cancelled or rescinded for such cause, and that by such special provisions of a contract it may be made incontestable on account of fraud, or for any other reason." citations omitted
    So how far do we try and go with the Exculpatory Clause?  Do we push it over the edge?  What do you think?  And, what you think is important because you're the one who has to get the contract signed and you're the one who has to avoid doing anything that could be construed as fraudulent.  Any thoughts?
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com