Waiver of Punitive Damages Must be Clear, Unmistakeable and Unambiguous

Pre-Injury Waiver Must be Unmistakeably Clear

Posted on July 8, 2021 by Barry Zalma

Jessica Kruger, a doTERRA International, LLC (doTERRA) distributor or Wellness Advocate, purchased a doTERRA product and applied it to her skin before visiting a tanning salon. Shortly thereafter, Kruger was diagnosed with second and third-degree chemical burns. In doTERRA International, LLC v. Jessica Kruger, 2021 UT 24, No. 20191040, Supreme Court Of The State Of Utah (July 1, 2021) the Supreme Court was asked to allow a pre-injury waiver of punitive damages.

Kruger sued doTERRA, seeking, among other things, punitive damages based on doTERRA’s failure to warn about the potential dangers of its product. doTERRA moved for partial summary judgment arguing that Kruger waived the right to seek punitive damages in the paperwork she signed to become a doTERRA distributor. The district court denied that motion and ruled that Utah law does not allow preinjury waivers of punitive damages.

BACKGROUND

Kruger wanted to become a doTERRA Wellness Advocate, which is the term that doTERRA uses for its independent distributors. doTERRA required her to sign a Wellness Advocate Agreement (Agreement). Once a Wellness Advocate, Kruger purchased ClaryCalm, a doTERRA product intended to address “normal symptoms associated with PMS and the transition through menopause.” The labeling did not mention that the product contained a high concentration of an ingredient that causes sensitivity to the sun. In fact, the label said: “Does not cause sun sensitivity.”

Kruger went tanning several hours after she had applied ClaryCalm to her abdomen and back.?After going to a hospital she was diagnosed her with second and third-degree chemical burns. Subsequent testing revealed that ClaryCalm contained a compound called bergapten. Bergapten can cause increased sensitivity to the sun at 15 ppm. ClaryCalm contained the ingredient at a concentration of 347 ppm.

Prior to Kruger’s injury, other customers had complained to doTERRA about burns after using ClaryCalm. doTERRA eventually reformulated the product to remove the phototoxic compound that Kruger claims caused her burns.

Kruger sued doTERRA seeking recovery for her injuries. She also sought punitive damages “to deter future similar conduct.” doTERRA moved for partial summary judgment.

doTERRA argued that Kruger was contractually restricted from seeking punitive damages because, as a doTERRA Wellness Advocate, she had waived her ability to claim punitive damages. doTERRA based its motion on the Agreement. That document states that

doTERRA . . . shall not be liable for special, indirect, incidental, consequential, punitive, or exemplary damages.?… I release and agree to indemnify doTERRA and its affiliates from any and all liability, damages, fines, penalties, or other awards or settlements arising from, or relating to my actions in the promotion or operation of my doTERRA independent business and any activities related to it . . . .

The Agreement incorporated the doTERRA Policy Manual by reference. The Policy Manual provides that doTERRA

shall not be liable for any: . . . special, indirect, incidental, punitive, or consequential damages, including loss of profits, arising from or related to the operation or use of the products including, without limitation, damages arising from loss of revenue or profits, failure to realize savings or other benefits, damage to equipment, and claims against the [Wellness Advocate] by any third person . . . .

The district court denied doTERRA’s motion. The district court acknowledged that the Agreement and Policy Manual expressly reference a waiver of punitive damages. But the district court concluded that Utah law prohibits a party from enforcing a preinjury waiver of liability for its own egregious conduct.

The court further reasoned that since the standard for proving punitive damages is set quite high—”willful and malicious conduct”—it would be “a remarkable thing” for punitive damages to fall below the bar set for conduct that cannot be waived.

ANALYSIS

The district court found that Russ v. Woodside Homes, Inc., 905 P.2d 901 (Utah Ct. App. 1995), stands in the way of preinjury waivers of punitive damages. doTERRA asks whether Utah law permits a party to waive punitive damages and to conclude that it does. In doTERRA’s view, Utah law should respect freedom of contract and allow a party to preemptively bargain away her right to seek punitive damages.

Kruger argued to the district court that even if Utah law permitted a preinjury waiver of punitive damages, that waiver would have to be “clear and unequivocal.” Kruger contended that the Agreement she signed with doTERRA lacked such clarity.

The law does not look with favor upon one exacting a covenant to relieve himself of the basic duty which the law imposes on everyone: that of using due care for the safety of himself and others. The presumption is against any such intention, and it is not achieved by inference or implication from general language.

The Supreme Court could see no reason why a preinjury waiver of punitive damages —assuming that Utah law permits such a creature — should require anything less than the “clear and unequivocal” language required for waivers of liability. If such a waiver is to be given effect, it is easy enough to use unequivocal and unambiguous language and to thus make that intent clear and unmistakable.

In Utah punitive damages are believed to serve a societal interest of punishing and deterring outrageous and malicious conduct which is not likely to be deterred by other means. Punitive damages, therefore, are part of the system that the law imposes to enforce the “basic duty” of due care for the safety of others that “the law imposes on everyone. Attempts to relieve oneself from the consequences of a blatant disregard of that duty should not be looked upon with favor. To be effective, a pre-injury waiver of punitive damages must be clear and unequivocal.

The broad waiver the Agreement contained might cover personal injury claims—after all, it uses language like “any and all liability” and covers “any activities related to” the operation of Kruger’s distributorship—but it does not do so clearly and unambiguously. doTERRA might have a persuasive argument that this language could be read to include a waiver of punitive damages arising out of the “operation or use” of its products. But doTERRA does not explain how the Policy Manual clearly and unambiguously gives notice that it effectuates a waiver of punitive damages arising out of an injury caused by using its products.

By signing up to be a distributor of doTERRA’s products, Kruger did not give an “unmistakable” waiver of her right to sue doTERRA for personal injuries caused by its products. Nor did Kruger expressly disclaim her right to seek punitive damages for “injury” or other forms of “bodily harm” to her own person.

Kruger did not waive her right to sue doTERRA for punitive damages arising out of a personal injury when she signed doTERRA’s Agreement. Utah law requires that such a waiver be clear and unambiguous. doTERRA’s was neither. The trial court was affirmed.

ZALMA OPINION

Waiver, to be enforceable, must be intentional, knowing, clear, unambiguous and unmistakable. To give up an important right like the right to sue for punitive damages for the sale of a dangerous product without warning about its propensity to cause burns if applied to a human body that is then exposed to sun or a tanning bench requires knowledge. She waived some damages as a seller of the product but not to be the victim of second degree burns.

? 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at https://www.zalma.com and [email protected].

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;?Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg;?Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/?Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/?podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4