The Lawletter Vol 34 No 11, November 19, 2010
Fred Shackelford, Senior Attorney, National Legal Research Group
In a case of first impression, the Kentucky Court of Appeals has ruled that an exculpatory clause in a contract for a home inspection is void on public policy grounds. In Mullins v. N. Ky. Inspection, Inc., No. 2009‑CA‑000067‑MR, 2010 WL 3447630 (Ky. Ct. App. Sept. 3, 2010) (unpublished), a homeowner hired a company to inspect his residence. The company's contract provided that in any action initiated as a result of negligent performance, damages would be limited to the cost of the inspection, which was $200. The inspector found no structural damage, despite being asked by the homeowner about a crack in the basement, and the home later sustained water damage.
In an action against the inspection company, the trial court enforced the contractual damages limitation. The appellate court reversed, ruling that the provision was against public policy. The court noted that exculpatory clauses have often been invalidated in personal injury cases, and it determined that the same principles should apply in a property damage case. The court reasoned that an inspection company would have little incentive to act diligently if its liability were limited to giving a refund, and further emphasized that there was no arm's-length bargaining between the parties to the contract. The court indicated that the provision was contrary to public policy even though the legislature had established a statutory scheme for actions filed against residential inspectors. Adopting the reasoning of courts in Tennessee and New Jersey, the Mullins court noted that, in addition to the parties' relative bargaining power, the following factors are relevant:
(1) whether the inspector held himself out as willing to perform the service for the public; (2) whether as a result of the contract, the inspector subjected the plaintiff to the risk of loss caused by the inspector's carelessness; and (3) whether the business of home inspection is suitable for regulation and is of great significance to members of the public because it is considered a necessity to its personal or financial health. Russell v. Bray, 116 S.W.3d 1 (Tenn.2003).
Id. at *4.