In this recent post I considered whether there’s any point in providing in a contract a definition of the term gross negligence. And in this other recent post I considered the adjective wanton. But both posts were inadequate, so I offer instead in this post a broader look at use of the terms negligence and gross negligence in contracts. It co-stars reckless, wanton, and willful misconduct. It’s a safe bet that it needs further work.
How the Terms Are Used
The terms negligence and gross negligence appear frequently in contracts. They’re used in two ways.
First, provisions featuring gross negligence or featuring both negligence and gross negligence can be used as a sword—as a basis for terminating a contract, as grounds for being indemnified by the other party, or to circumvent a waiver of liability or cap on indemnification benefiting the other party.
And second, such provisions can be used as a shield—in a provision releasing a party from liability for its own negligence or for its own negligence and gross negligence.
Courts in many jurisdictions have held that advance releases of liability in cases of gross negligence are unenforceable as against public policy. See, e.g., City of Santa Barbara v. Superior Court, 161 P.3d 1095 (Cal. 2007) (California); Sommer v. Federal Signal Corp., 79 N.Y.2d 540 (N.Y. 1992) (New York). Releases of liability that use a negligence standard, as well as the other kinds of provisions, whether featuring just negligence or both negligence and gross negligence, are presumably enforceable.
In general usage, negligence means “carelessness.” But it’s likely that any court interpreting a contract provision that uses the term negligence will treat it as referring to the tort of negligence, which is grounded in, to use the Black’s Law Dictionary definition, “The failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation.”
Gross negligence is a tort term of art. Like negligence, it’s vague, so necessarily determining whether a party’s conduct has been negligent or grossly negligent depends on the circumstances. But beyond that, gross negligence has no settled meaning.
For example, in Sommer, at 554, the New York Court of Appeals held that gross negligence must “smack of intentional wrongdoing” and that it is conduct that “evinces a reckless indifference to the rights of others.” By contrast, in City of Santa Barbara, at 1099, the California Supreme Court, quoting a 1941 case, held that gross negligence “has long has been defined in California and other jurisdictions as either a ‘want of even scant care’ or ‘an extreme departure from the ordinary standard of conduct.’”
The Sommer and City of Santa Barbara standards might seem broadly compatible, but in City of Santa Barbara, at 1099 n.4, the court went on to say, “By contrast, ‘wanton’ or ‘reckless’ misconduct (or ‘willful and wanton negligence’) describes conduct by a person who may have no intent to cause harm, but who intentionally performs an act so unreasonable and dangerous that he or she knows or should know it is highly probable that harm will result.” Because the Sommer standard invokes recklessness, the Sommer standard would seem to require greater misconduct than does the City of Santa Barbara standard. So courts from two states have given a different meaning to the term gross negligence.
Taking into account the caselaw more generally, gross negligence “is a nebulous term that is defined in a multitude of ways, depending on the legal context and the jurisdiction.” 57A Am. Jur. 2d Negligence § 227 (2012). Consistent with the distinction between the Sommer and City of Santa Barbara definitions, some jurisdictions distinguish between gross negligence and willful, wanton, or reckless conduct, whereas other jurisdictions treat those terms as being the same or substantially the same. See 57A Am. Jur. 2d Negligence § 231, § 232.
Confusing matters still further is the notion that “wanton usually denotes a greater degree of culpability than recklessness.” Garner’s Dictionary of Modern Legal Usage, at 936.
This chaos is in part the result of courts trying to demarcate distinct levels of misconduct on what is a slippery slope of vagueness, with differences being measured in degrees rather than absolutes. It’s quaint how courts seem to think that an affected vocabulary, such as “smack of” (Sommer) and “scant” (City of Santa Barbara), will help them in what is a hopeless task.
Given this state of affairs, it’s not surprising that many jurisdictions, among them Pennsylvania, don’t recognize degrees of negligence. “The view taken is that negligence, whatever epithet is given to characterize it, is the failure to exercise the care and skill which the situation demands, and that it is more accurate to call it simply ‘negligence’ than to attempt expressions of degrees of negligence. 57A Am. Jur. 2d Negligence § 219.
Outside the U.S., the law of a given jurisdiction might recognize negligence and—less likely—gross negligence, or it might use a different analytical framework.
Given the confusion described above, here are seven recommendations regarding how to express degrees of misconduct in a contract:
First, the meaning of negligence is relatively consistent across the U.S. jurisdictions, so using it in contracts doesn’t involve undue uncertainty.
Second, unless you’re in a position to research the tort law of each governing law in contracts that you draft and negotiate, it would be safer not to use the term gross negligence, as its meaning changes from jurisdiction to jurisdiction.
Third, if you want to use a term for misconduct that goes beyond negligence, use recklessness, or the adjective reckless, or the adverb recklessly, instead of gross negligence and its variants. [Updated 7 July 2016: If I were writing the previous sentence now, I’d say stick with gross negligence and its variants. But the main point is that made in the next sentence.] Given that assessing misconduct depends entirely on the circumstances and involves differences of degree, it would be pointless to agonize over whether to opt for another standard more or less exacting than recklessness. In particular, it’s unrealistic to think that for purposes of contracts one could usefully distinguish between reckless conduct and wanton conduct. It’s a safe bet that many contract readers have no idea what wanton means and that the remainder would assume, sensibly enough, that wanton is an annoying legalism that means pretty much the same thing as reckless. But if you use reckless, bear in mind that in those jurisdictions that don’t recognize degrees of negligence, a negligence standard would apply.
Fourth, don’t use the word willful. Instead, use intentional; see this 2007 blog post.
Fifth, make it clear that whatever one or more labels you use, they relate to causation of damages. It’s possible to act intentionally without intending to cause damages. If Fred throws a ball—an intentional act—and unintentionally breaks a window, it would be illogical to accuse him of intentional misconduct, as opposed to acting negligently or recklessly.
Sixth, adjust to reflect the governing law. If it’s the law of a jurisdiction that doesn’t recognize concepts used in the U.S., don’t insist on incorporating those concepts in the contract.
Seventh, don’t try to define recklessness or any other form of the word. It means … recklessness. Defining it would just clog up the contract with verbiage without adding certainty. Recklessness is a vague standard—if you invoke vagueness, you have to accept that it comes with a measure of uncertainty.
And eighth, consider not using tort-based standards in a contract in connection performance under that contract. Acme decides that some aspect of its contract with Widgetco no longer makes business sense, so it elects not to perform. Widgetco has a remedy under the contract for that nonperformance—why create in addition a tort-based remedy? In particular, if a cap on indemnification contains a carve-out for recklessness or intentional misconduct and the indemnification covers Widgetco for Acme’s failure to comply with obligations under the contract, the carve-out could end up vitiating the limit on indemnification. Such a carve-out would make more sense in the case of, for example, indemnification of Widgetco for losses relating to Acme’s relations with nonparties.
A Sample Provision
How do these recommendations play out in practice? Below are “before” and “after” versions of a provisions from a fresh contract on EDGAR: the series 2012-4 lockbox account agreement dated September 10, 2012, between JPMorgan Chase Bank, N.A., (“Processor”), AmeriCredit Financial Services, Inc., and Wells Fargo Bank, National Association, as trustee.
Processor shall not be liable to any party hereto or any other person for any action or failure to act under or in connection with this Agreement except to the extent such conduct constitutes its own willful misconduct or gross negligence.
Processor will not be liable to any party or nonparty for any act or failure to act on its part in connection with its performance under this agreement, except to the extent that as a result of its reckless disregard for the consequences of any such act or failure to act, or its intentionally causing those consequences, Processor causes any party or nonparty to incur damages.
Incidentally, this post served to remind me why I love what I do: even after a dozen years of writing about contract language, I still encounter meaty topics that I haven’t written about. If anyone else has written in detail about use of the terms negligence and gross negligence in contracts, please let me know. My thanks to D.C. Toedt for reminding me about the issue of gross negligence, and to Chris Lemens for prompting me to take a closer look at it.