Businesses Should Prepare: Freebies Can Come At A Heavy Price Absent Proper Underlying Agreements

Companies often develop complimentary services that can enhance the consumer experience and build customer loyalty to their brand. Shrewd businesses recognize that these freebie benefits should come attached with exculpatory and indemnification agreements, so a courtesy for customers doesn’t end up being a colossal burden of additional liability. Even when faced with heartbreaking injuries to a small child, Maryland’s highest court recently ruled that exculpatory agreements are binding on children in Maryland, creating new law on an issue of first impression in BJ’s Wholesale Club, Inc. v. Rosen, No. 99, Sept. Term 2012.

The stage for the case was set when the Rosens permitted their 5-year-old son, Ephraim, to play at a free “Incredible Kids Club” area at a BJ’s Wholesale Club in Owings Mills, Maryland. Before Ephriam was permitted to play, Mr. Rosen had to execute an agreement releasing and indemnifying BJ’s from any related injuries that might arise. Cut to 15 months later, when Ms. Rosen returned to BJ’s to do a little shopping. Mrs. Rosen again dropped Ephraim off at BJ’s Incredible Kids Club, which featured a large toy hippopotamus to climb on.

“Harry the Hippo” sat atop a thin layer of carpet, which, unbeknownst to Mrs. Rosen, sat atop a hard concrete floor, as opposed to foam padding that was under carpet elsewhere in the Club. When Ephraim tumbled off, he landed on his head, and developed a hematoma that required life-saving surgery to remove part of his skull. The Rosens filed suit against BJ’s in the Circuit Court for Baltimore County, alleging that BJ’s was negligent.

BJ’s moved for summary judgment, arguing that the release and indemnification agreement barred the claims that the Rosens had brought on Ephriam’s behalf. The Rosens contended that it would be against the public interest to bind children to such agreements, which should be held invalid under these facts. The Circuit Court didn’t find any grounds for such a public policy and upheld the exculpatory clauses, granting summary judgment to BJ’s.

On appeal, the Court of Appeals looked to out-of-state caselaw and general parens patriae considerations in addressing this issue of first impression under Maryland law. Maryland’s highest court fell in line with a majority of other States in noting that initially notes that exculpatory agreements are against the public interest when used to release a child’s tort claims.

Despite this initial finding, the Court of Appeals ultimately joined a minority of other States in holding that the enforcement of exculpatory agreements, even against children, is more consistent with Maryland public policy, as indicated in statutory law. The Court noted numerous Maryland statutes that authorize parents to make major health, educational, employment, and legal decisions for their children. Most persuasive to the Court, Section 6-405 of the Courts and Judicial Proceedings Article of Maryland’s Annotated Code, which permits a parent to settle or release negligence claims on behalf of their children.

The Court of Appeals reasoned that Section 6-405 contradicts other States’ laws which prohibit parents from settling or releasing their children’s negligence claims absent a Court overseeing and approving such agreements. Given the policy differences between Maryland’s Section 6-405 and the statutes of many States in the majority which require Court intervention for the release of a child’s claims, the Court found jurisprudence from the majority States to be inapplicable. The Court reasoned that, because parents are permitted to release their children’s claims after they arise here in Maryland (under Section 6-405), Maryland’s public policy doesn’t prohibit those parents from also releasing claims before they arise. Ergo, whatever substantial dangers were posed by Harry the Hippo, the law respects “a parent’s determination that the potential risks of an activity are outweighed by the perceived benefit to the child when she executes an exculpation agreement,” and the agreement is therefore binding as to a child’s potential claims.

The question then becomes whether a company’s exculpatory agreements have actually effectively protected it from the potential claims of parents and their children. Luckily, when concerns arise about whether a business has properly shielded itself from unexpected and unwanted liability, STSW is here to help. Contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or bsinclair@silvermanthompson.com, or commercial litigation associate Chris Mincher, to discuss how STSW can assist with your exculpatory-agreement issues.