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Are Contractual Clauses Limiting Liability For Negligence in Performance of the Contract Valid in Kentucky?

An exculpatory clause is a provision in a contract under which either (1) one party is relieved of any blame or liability arising from the other party's wrongdoing, or (2) one party (usually the one which drafted the agreement) is freed of all liability arising out of performance of that contract. For example, a dry cleaner's receipt that includes a disclaimer freeing him or her from any liability for damage to the item to be cleaned during the dry cleaning process.

Exculpatory clauses are generally valid and enforceable in Kentucky when entered into between parties with equal bargaining power.  However, exculpatory clauses exempting liability for negligence are generally disfavored under the law and are strictly construed against the party relying upon such clause.  The exculpatory clause must clearly set forth the negligence for which liability is to be avoided.  Clear and explicit language is required to absolve one from liability. 

Further, an exculpatory clause cannot contract away damages caused by willful or wanton negligence, generally encompassing reckless behavior or a conscious disregard of the rights or safety of other.  A contractual clause limiting liability would also not be valid if it was procured by fraud or other wrongful conduct. 

A common type of exculpatory clause involves limiting liability on a secured loan or mortgage solely to the secured collateral.  In other words, if there is a default, the contract states that damages will be limited to execution on the collateral (i.e., foreclosure on the property covered by the mortgage). 

What happens if an exculpatory clause or limita­tion of liability clause is not valid?  In this situation, a party may sue pursuant to any other valid remedy, such as actual damages.