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JANUARY 2013 issue of
Rental Management

Risky Business: Provision omission
01/14/2013

Editor’s note: This month’s Risky Business includes a claim story involving an injured person, but this month we will take a look at how the rental store’s contract could have been modified to protect them. Attorney James Waite, Esq., the author of Business Management, Contracts & Legal Guidelines, provides some examples of language that would have strengthened the store’s rental contract.

A rental store was sued by a woman claiming she suffered a broken ankle from stepping into a hole created by store employees during a tent installation. She claimed she didn’t see the hole because it was covered with turf. The rental store owner denied creating the hole — it being larger than holes left by tent poles — and suggested the renter may have created the hole while installing a ramp.

The rental contract could have helped a good deal, through the use of a few important provisions:

  • An insurance provision: The contract did not include a requirement that the rental customer maintain commercial general liability insurance naming the rental company as an additional insured. If the contract had an insurance provision, assuming the customer complied with the requirement, the claim would probably have been defended and paid by the rental customer’s insurer, never reaching the rental company or its insurer.

Also, had the customer failed to provide insurance, the customer would have breached the rental contract, regardless of who was at fault in the accident, creating a legal claim for the rental operator against the customer for losses stemming from that failure. In addition, two acknowledgements by the customer — that the customer received all applicable instructions and warnings, and that tents are inherently dangerous and should be used with great care — could have made a difference.

Customers often claim the rental company failed to advise them of the proper use(s) of or the potential dangers associated with using rented equipment, generating “negligence” and perhaps “strict liability” claims against the rental company.

If the rental contract had included these acknowledgements, the rental company would have been able to argue that the rental customer had knowledge of the danger and therefore implicitly assumed the risks, along with a responsibility to ensure the safety of event attendees.

  • An “assumption of risk” provision: The contract included an “assumption of risk” provision, but only in the paragraph entitled “loading and unloading,” raising a question as to whether it applied to the rest of the transaction. Clarity is essential because these provisions shift substantial liability to the customer, something courts enforce reluctantly. The contract should make it clear that the customer “assumes all risk associated with the rental.”
  • A stronger “indemnity” clause: An “indemnity” clause requires the “indemnitor” (here, the customer) to “indemnify” (pay) the “indemnitee” (rental company) for claims made in connection with a rental. Here, although indemnity language was used, it was thinly worded and inconspicuous. These provisions are more likely to be enforced if they are printed in a bold, underlined and/or capitalized typeface, the concern being that a court might feel compelled to deem them unenforceable, if not made very obvious.

A stronger indemnity clause would look something like this: “Lessee shall indemnify, defend and hold harmless lessor, its parents, affiliates, …, successors and assigns, from and against any and all liabilities, claims, damages, losses, costs and expenses (including … attorneys’ fees) arising in connection with … [the rental].”

  • An “attorneys’ fees” provision: Most states apply the “American Rule,” which requires all litigants to pay their own attorneys’ fees, unless a statute or contract provides for recovery of such fees. Had an attorneys’ fees clause been included, the rental operator would have been in a better position to negotiate a settlement with the customer because of the threat the customer might end up paying both his own fees and those incurred by the rental store.

Many cases are decided based not on a single contract provision, but instead, on a host of factors, such as the inclusion of contractual protections, such as an indemnity clause, as well as supporting provisions, such as warnings and assumption of risk provisions. Accomplishing all of this on a single 8.5-in.-by-11-in. piece of paper might be one of the most deceptively difficult tasks a lawyer can undertake. However, doing so carefully, before a lawsuit is filed, can save tens of thousands of dollars.

James Waite, Esq., former general counsel at RentX Industries, has written rental contracts throughout the United States over the past 20 years. He is the author of the American Rental Association’s (ARA) Business Management, Contracts & Legal Guidelines and has authored numerous articles on the rental industry and the laws affecting it. His rental contract forms are available online at equipmentrentalcontracts.com. He can be contacted at 866-582-2586.

 

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