Are your liability release contracts sufficient to sustain a successful motion for summary judgment? Texas courts generally hold releases of liability to fairly high standards. Release cases are very fact specific, and often come down to extremely technical points about the contents of the release document. As such, the proper drafting of these contracts is a must. A recent case gives us a glimpse into how Texas courts interpret liability releases.

A man by the name of Revel Thom decided to ride the mechanical bull while he was hanging out at Rebel’s Honky Tonk, a country bar on 5th Street in Austin. Before riding the bull, Mr. Thom signed a document entitled “PARTICIPANT AGREEMENT, RELEASE AND ASSUMPTION OF RISK.” The release had Thom acknowledge the risks of riding the mechanical bull, disclose any pre-existing health conditions, and release and indemnify Rebel’s and related parties. 

Unless you’re Ty Murray, don’t expect to stay on one of these things…especially if you’ve been drinking!

However, Mr. Thom failed to inform the mechanical bull operator that he had suffered from chronic back pain for four to five years requiring him to receive annual epidurals to numb the pain. Mr. Thom fractured his T-12 and L-1 vertebrae in his back as a result of being bucked off the mechanical bull. Thom subsequently sued Rebel’s Honky Tonk for his injuries. 

The honky tonk filed a motion for traditional summary judgment, arguing that they conclusively established the affirmative defenses of release and assumption of the risk. The honky tonk also sought a no-evidence summary judgment on Thom’s claims of negligence and negligent supervision. The trial court granted the honky tonk’s motion for summary judgment without stating the basis for its ruling.

Overruling all of Thom’s points of error, the Austin Court of Appeals affirmed the trial court’s dismissal of Thom’s case on summary judgment. 

The court of appeals found Thom’s argument that he did not read the release to be unconvincing, stating,

It is well established that one is presumed to know the contents of the contract that they are signing and are bound by its legal effects.

The court of appeals also found that the release language was sufficiently conspicuous, because the release was contained in a stand-alone document, was not written in minuscule font, and contained bolded and underlined warnings.

The language listing Rebel’s Honky Tonk and its “owners” as released parties was upheld by the court of appeals to be specific enough to release additional defendants Rainbow Cattle Company, Inc. (the honky tonk’s owner) and Zack Truesdell (Rainbow’s president). The court found the the case cited by Thom inapplicable, as the release at issue in that matter purported to release an “unlimited, general class of potential defendants.”

Hat tip to Nick Farr over at Abnormal Use for the heads up on this case.

Case Information:

Thom v. Rebel’s Honky Tonk, No. 03-11-00700-CV, 2012 WL 3793181 (Tex. App.—Austin, Aug. 30, 2012, no pet. h.)

If you are thinking about buying or selling a horse on a “trial basis”, or if you are entering into a horse sale agreement with a trial period, here are five of the most important things you should consider:

1)      The Timing of the Pre-Purchase Exam.  The most important consideration in horse sales is usually, “is the horse sound”?  If the horse is not sound enough to perform the intended tasks of the prospective buyer, the prospective buyer shouldn’t be taking it “on trial” anyway.  It doesn’t happen often, but a horse can sustain an injury or get sick during even a short trial period.  Therefore, the pre-purchase exam should be conducted before the horse is ever taken by a prospective buyer to “try out.”  If a question is ever raised as to whose possession the horse was in when the horse was injured or got sick, both parties will be informed of the horse’s condition when it left the seller’s property if the pre-purchase exam is conducted before the horse leaves.  See the following posts for more information on the types of tests that should be conducted in a pre-purchase exam.

Guest Post:  Top 10 Pre-Purchase Exam Considerations

Tips for Equine Pre-Purchase Exams

2)      Insurance.  If the horse is nice / expensive, the seller should insure it for mortality and major medical before the prospective buyer leaves with the horse.  Note:  Sellers should speak with their insurance agent to make sure the seller’s insurance will cover incidents that occur during the trial period.  If the seller’s insurance will not cover the trial period, good equine insurance agents can often sell the prospective buyer a short-term insurance “binder” that will cover incidents that occur during the trial period.  These short-term "binders" may be extended by a formal policy if the prospective purchaser decides to keep the horse.  If the prospective buyer purchases an insurance “binder”, the seller should be named as additional insured.

3)      Written Purchase & Sale Agreement.  All terms of a purchase agreement “on trial” should be reduced to writing.  Among other things, the specific term of the trial period should be set out, as well as who will bear the risk if the horse is injured or dies during the trial period.  A “security deposit” can also be provided for in the agreement, along with specifics on when the seller can keep the deposit and in which instances the deposit will be refunded to the prospective buyer.  The bill of sale (which transfers title to the horse) and the registration papers should not be signed over until after the trial period has expired. 

4)      Liability Release.  The seller should consider having the prospective buyer sign a release of liability should the prospective buyer or its property be damaged during the trial period.  This will not cover injury to third parties in most instances.  A seller can procure a liability insurance policy to cover accidents involving the horse and third parties.

5)      Location of Horse During Trial Period.  A seller should have a prospective buyer agree in writing as to a single location where the horse will be kept during the trial period.  The seller can deliver the horse to said location or make other arrangements to either approve or disapprove the living conditions of the horse before the horse is released to the prospective buyer.  If the prospective buyer intends to board the horse with a third-party, it is wise for sellers to make sure that the prospective buyer pre-pays board for the trial period in advance.  This is to guard against stableman’s or agister’s liens being placed on the horse if the prospective buyer does not pay board during the trial period.

Due to all of these concerns (and others), I do not typically recommend that prospective buyers or sellers enter into "trial period" sale agreements.  In the best case scenario, a seller would allow a prospective buyer to inspect the horse as much as needed prior to the sale, either 1) on the seller’s premises;  or 2) at some other venue to which the seller would transport the horse for purposes of inspection.

This post was in response to a special request I received from a reader for a blog post on horse sales with trial periods.  I’m kind of like one of those music groups that takes requests as long as the song is in their repertoire, and I don’t even ask for tips in return!  So please contact me if you have any special requests for a blog topic.  I’m always looking for good content that will be helpful to my readers.

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Special Event Liability insurance will be the final topic of this week’s discussion about the various types of equine liability insurance available for purchase.  If you are hosting an event such as a clinic, a roping, a show or a trail ride, you should consider buying insurance.

Special Event Liability insurance typically extends to the organization putting on the show and its members.  Show officials, committee members, judges, course designers and premises owners can usually be included as additional insureds (and I recommend getting coverage for all of the above, if applicable).

If considering Special Event Liability insurance, ask your agent what types of incidents are covered and what parts of the premises are covered.  Many accidents that occur at a horse event do not involve horses and do not happen in the arena.  I know of one instance where a horse show sponsor was sued in connection with a golf cart wreck in the parking lot.  As such, the Equine Activity Laws will not always provide a defense so you need to make sure you have insurance coverage.

Also, make sure that claims made by spectators and guests (not just participants) are covered under the policy.

In addition to Special Event Liability insurance, I recommend that event sponsors1) post the Equine Activity Law signs at the event; and 2) have each participant sign a liability waiver form that is a separate document from the entry form.

The "downside" for some sponsors (depending on the event) is that the liability carrier may prohibit the sponsor from allowing dogs or alcohol on the premises during the event.  Even if the sponsor is not selling alcohol, that "col’beer" in people’s private ice chests in their pickups might be disallowed under the insurance policy.  So add dogs and beer to the list of things to discuss with your agent to make sure you’re covered.

Photo credit:  Eric Ashford (Flikr)

If you board, breed, race, train, give riding lessons or conduct any kind of business-related equine activity, I highly recommend that you consider a Commercial Equine Liability policy. 

Homeowner’s and standard Farm & Ranch insurance policies completely exclude your equine business pursuits. 

Commercial liability insurance pays the damages for liability imposed upon you or your business by a liability claim or court judgment.  It also pays the cost of defending you when a lawsuit is brought against you.

This policy kicks in when an accident occurs and someone is hurt, regardless of whether you own the horse involved.

However, the basic Commercial Equine Liability policy does not cover claims for damage to property in your care, custody or control.  If someone claims, for example, that you injured their horse in the course of training it, you would need a Care, Custody & Control policy to cover that damage claim.

The Equine Activity Laws may help you provide a defense in the event of an equine incident, but they will not prevent you from being sued.  Without adequate liability coverage you will have to pay damages and defense costs yourself.  And the Equine Liability Laws only cover “inherent risks” in equine activities.  Some plaintiffs are able to successfully argue that their situation did not involve an “inherent risk”.  In other words, you could lose the case.  It bears repeating that defense costs are generally not recoverable by defendants in Texas lawsuits.

Commercial Equine Liability policies are designed to help protect you if you are sued by a third party who is injured or whose property is damaged.  A third party is generally someone who is not a family member or employee. 

If you have employees, you should consider carrying workman’s compensation insurance as they are not covered under the general liability policy.  You should also make sure that any independent contractors that work with you show proof of their own liability insurance and ask that you be named as an Additional Insured on their policy.  This is especially true if you have an independent instructor or trainer working at your facility.

In addition to this policy, I recommend that all equine businesses 1) post the applicable Equine Activity Law in your state in conspicuous areas in your barn and on your property; and 2) have each third party who uses your facility sign a liability waiver that contains a covenant not to sue and specifically waives liability for ordinary negligence.   

 

Photo credit:  Katarina 2353 (Flikr)

Many lawsuits involving horses can be avoided altogether if the right insurance policy is in place. Or, if a lawsuit cannot be avoided, a horse owner with the right insurance policy does not have to rack up $75k plus getting their case to trial and face a potential judgment of thousands or millions of dollars.

Remember, posting the Chapter 87 Equine Activity Act sign, setting up an LLC, or getting people to sign a liability waiver does not immunize you from suit.  If you are sued, you will still have to pay a lawyer to defend you even if you eventually win the case.  In Texas, defendants usually cannot recover attorneys’ fees in court.

So, the theme this week is equine insurance.  Do you need it and what kind do you need?

In the May 2010 Issue of SuperLooper, insurance specialist Amy J. Daum talks about Private Horseowner’s Liability Policies (PHOs).

A PHO is meant to cover you if your horse directly injures someone or damages someone’s property, and you are sued.  Some examples of when a PHO might cover you are:

1) One of your horses gets out of your pasture and is hit by a car, and the motorist sues you;

2) Your horse is tied to your horse trailer at a show or roping and kicks someone’s child while you are around the corner doing something else; and

3) You allow your friend to ride your best horse and he falls off when your horse stops quickly.  Your friend has no medical insurance so has to sue you to pay his medical bills.

Even if you have a farm & ranch or homeowner’s policy, a PHO might cover you under circumstances that your farm & ranch policy would not.  For example, some farm & ranch or homeowner’s policies will not cover you if the accident happened off your property.  Also, if an accident happens at an event where money can be won (roping, barrel race, cutting, etc), some policies will consider the event a "commerical activity" and exclude coverage.  

The really cool thing about PHOs is that they are cheap!   By way of example, PHOs with Broadstone Equine Insurance Agency start at about $130 per year for $300,000 in coverage, and $235 per year for $1million in coverage.  

Even the $1 million policy costs less per year than one hour of work for the average trial lawyer!

But PHOs are not available for everyone.  Daum says that an equine professional who teaches lessons, boards, trains, or buys and sells horses cannot get a PHO.  

Also, a PHO only covers you if you are sued by a "third party".  A third party is someone who is not a family member or someone performing services for you (such as a vet, farrier, or employee). 

An equine professional or someone being sued by a service provider could be covered by a general liability policy, a type of insurance that will be discussed in a future post.

For those horseowners who do qualify, I believe getting a PHO is worth the money.  This is especially so if 1) you haul to shows, ropings, or rodeos on a regular basis, 2) other people will frequently be riding your horses, or 2) you have any reason to believe your horses might get out and make their way onto a road.

I just returned from the 2010 National Conference on Equine Law , held last week in Lexington, Kentucky. This was my fifth year in a row to attend the conference, and it was a great year.  The conference had a record number of attendees–180 practitioners from all over the United States. This year’s lineup of speakers and topics was the best I’ve seen so far in five years.

I was lucky enough to be invited to speak this year.  My topic was "A Multi-Jurisdictional Comparison of Equine Liens".  With only 30 minutes to speak, I only had time to cover Texas, Kentucky, and Florida.  However, I hope the materials are helpful by reference to every practitioner or horseman regardless of state.  My handout can be accessed in two parts: Part 1 and Part 2.  Click here for a copy of my PowerPoint presentation.

Takeaways from my presentation:  1) no matter what state you’re in, and regardless of whether your state requires it, always send written notice directly to the debtor (if you can find them) before foreclosing on an equine lien; 2) if you want to do a private lien sale under the UCC foreclosure provisions, make sure you can prove to a judge or jury that your debtor was engaged in a "farming operation" (i.e. they are in the horse business–not just a hobbyist); and 3) there may be multiple liens on the horse at issue.  Be aware of which lien has priority.  The person in possession of the horse almost always has the most bargaining power, regardless of priority.

Ned Bonnie, a long-time Kentucky horseman, equine lawyer, and graduate of Yale undergrad and law school, told me he also attaches (seizes via court order) the original registration papers to a horse when a lien dispute arises.  I like this idea, though it requires filing a lawsuit in Texas.

Other highlights from this year’s conference:

1) Frank T. Becker’s annual Equine Case Law Update–The "case of the year" (the year’s most wacky or novel case) was State v. Coates, 2009 WL 2414334.  Frank calls it a "silly case of no legal significance", but interesting nonetheless!  It involved a case of "road rage" between a jogger and a horseman fighting over who should yield a pathway.  The jogger intentionally startled the horse and ended up getting arrested.  Horsemen 1, joggers 0.

2) Ted Martin and April Neihsl talked about the recoverability of damages in equine cases.  Ted stressed the importance of determining the fair market value of the horse at issue and said it is usually determined by 1) expert testimony; 2) previous sales prices and offers to buy; and 3) the owner’s testimony (in some cases).

April addressed the recoverability of lost profits, sentimental, and punitive damages.  April stressed that when proving up lost profits, it is essential that the plaintiff had income in the past and that the focus is on net profits rather than gross profits.  Also, while sentimental damages are rarely awarded in equine cases, some states (Colorado, Illinois, Oregon, Tennessee, and Utah) allow them by statute.  

3) Bob Webb and Chris Coffman discussed the IRS’s "National Research Program" that is targeting many horse businesses.  The key issue to survive these audits is to prove that the horse operation is a for-profit business, or a trade at the very least.

4) Doyice and Mary Cotten discussed changes in the law affecting the enforceability of liability waivers.  The most frequent causes of liability waiver failure are, according to the Cottens: 1) statutory prohibition of waivers in some states (such as Montana and Louisiana); 2) lack of clarity in the waiver (use of phrase "all liability"); 3) inclusion of waiver in entry form or membership contract; 4) waiver is overbroad or too narrow; and 5) surprisingly–the party to be released is not named in the waiver!

5) Paul Husband presented on the law determining whether someone is an independent contractor or an employee.  Paul stressed the importance of this issue as 6,000 employment tax audits are planned as part of the IRS National Research Program.  The Obama administration has budgeted $25 million to target misclassification of workers as independent contractors.  If an employer misclassifies an employee as an independent contractor, they can receive the "100% penalty" (the person with signature authority on checks for the employer personally pays the employee’s tax and serves time in jail).

6) Jay Hickey of the American Horse Council addressed current federal legislation affecting the horse industry.  The Economic Stimulus Bill contains at least one thing that might benefit horse owners–$1.7 billion that can be used for the maintenance and construction of equine trials.  The AHC encourages local organizations to contact district offices to make sure funds are appropriated to horse-related projects.

7) Julie Fershtman discussed liability issues surrounding equine shows and events.  Because most shows or rodeos do not get each spectator to sign a liability waiver, it is important that event sponsors ask their insurance company about insuring against spectator liability.  Furthermore, it was noted that many accidents at equine activities do not involve horses at all, thus bringing them outside the Equine Activity Acts.  Sponsor insurance should, if possible, cover all premises liability issues…not just accidents involving horses.

8) Krysia Carmel Nelson and Tamara Tucker addressed liability issues in boarding and training arrangements.  They suggested including the following clauses in some boarding/training agreements: 1) "training disclaimer" to protect against claim that bad training diminished value of horse; 2) "risk of loss/indemnity" provision to curtail claims that the trainer or boarding facility injured the horse; 3) "veterinary power of attorney" to protect boarding facility from claim that veterinary services were not authorized and ruined horse; 4) "abandonment clause" holding that after a certain period of time, a horse becomes property of the boarding facility/trainer if the owner doesn’t pay, make contact, or move the horse.

9) Bruce Smith and Mike Meuser covered fraud in horse sales transactions.  They addressed the crucial issue of a seller’s duty to disclose a known defect in a horse.  A duty to disclose can arise when 1) a sales contract requires it; 2) a seller voluntarily makes a partial disclosure that is misleading; 3) the seller knows the buyer has the wrong impression about something related to the horse; 4) a confidential or fiduciary relationship exists; and 5) the seller knows the horse has dangerous propensities.

10) Gregory Dennis, a practitioner who specializes in veterinary malpractice and disciplinary proceedings, discussed various issues surrounding veterinary malpractice cases involving horses.  His presentation highlighted the difference between general negligence in veterinary actions versus veterinary malpractice.

If you would like further information about this year’s conference, please click on the individual presenters’ names discussed above to find their contact information, or contact me for details.