Modern Exculpatory Clause Test

In a recent decision by the Tennessee Supreme Court, the Court overruled the previous test used to determine whether an exculpatory clause is enforceable. After reviewing the lengthy history of Tennessee appellate court decisions regarding the enforceability of exculpatory clauses, the Court found that the Olsen test, which was reiterated last in an opinion in 1992, was an outdated test now only used by the minority of states. In following the lead of the majority of states, the Court implemented a new method for determining whether an exculpatory clause is unenforceable. The Court held that the enforceability of exculpatory agreements should be determined by considering the totality of the circumstances and weighing non-exclusive factors of (1) the relative bargaining power of the parties; (2) the clarity of the exculpatory language, which should be clear, unambiguous and unmistakable about what the party who signs the agreement is giving up; and (3) the public policy and public interest implications. The Court went on to hold that there is no professional services criterion restricting the application of this new holding to contracts for professional services, which had previously been a restriction. The Court went on to described and provide additional guidance for the application of the three factors.


In the case at issue, a rehabilitation hospital hired a medical transportation company to take a patient to a doctor’s appointment. Before the transport, the company’s driver required the patient to sign an exculpatory agreement which, in part, released the company from any liability. The patient fell when entering the vehicle after leaving the doctor’s appointment and subsequently sued the transportation company. In utilizing the newly held test, the Court found that the exculpatory agreement was not enforceable. The patient had an inferior bargaining power as he was a patient in the hospital, had no control over which company was chosen by the hospital and needed to get to his doctor’s appointment without another readily available option for transportation. The Court further found that the language of the agreement was misleading and specifically, a portion of the agreement referenced a release from ALL liability which is not proper as an exculpatory clause cannot absolve a party from liability related to gross negligence, intentional conduct, etc. Lastly, the Court looked at the public policy implications. The Court held that the transportation company was in a position of greater responsibility to the patient and that the patient had mere minutes to read the agreement and did not have the option of rescheduling, etc. The Court equated this situation as similar to the public policy considerations held for clients of professionals, residential tenants, employees and bank customers who are protected from exculpatory provisions and found that the agreement was contrary to the public interest. Based on these findings, the Court ruled that the exculpatory clause was not enforceable. Based on the Court’s holding, it is unlikely that exculpatory clauses related to healthcare, even transportation for medical appointments, will be enforceable.