Boilerplate Symposium IX B: Kim Krawiec on Contracts as Disclosure, Part II

This is the second part of the ninth in a series of posts reviewing Margaret Jane Radin’s Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.

Kimberly D. Krawiec is the Kathrine Robinson Everett Professor of Law at the Duke University School of Law.  

Contract As Disclosure II (Or Why I Keep Signing That Same Stupid LiabilityWaiver)

As I stated in my last post, I want to use the example ofthe travel company liability waiver at left to illustrate the boilerplatephenomenon.  And here is where myanalysis would differ from Peggy’s, perhaps in important ways.  She argues, for example, that many consumerscannot understand the complicated legalese in boilerplate.  That may be true with some boilerplate, butthese terms are quite simple.  Plus, inmy experience, the consumers of this kind of adventure travel tend to be fairlysophisticated in terms of their ability to read and understand the kind ofdocument I’ve posted above. Certainly many if not all of these purchasers canunderstand that the tour company is saying that it is not responsible even ifyou die through the negligence of its employees. 

Peggy also argues that many consumers do not bother to readthe boilerplate. That is often true, but my experience suggests that it is notaccurate with respect to my fellow adventure travelers.  The liability waiver, which the companyhounds you to sign prior to departure, is a regular lamentation/good laugh overthe group dinners.  Finally, Peggy arguesthat consumers miscalculate the cost of such waivers because we are bad atassessing risk, which she appears to equate with underestimating risk.  Again, this is sometimes true, but people areprone to risk overestimation, as wellas underestimation, depending on the circumstances.  Finally, and this is the lesson from thedisclosure literature, famously advanced by Alan Schwartz in the boilerplatecontext, not everyone needs to read, understand, and act on her preferences inorder to effect a change in boilerplate terms. By voting with their feet,consumers (like investors) can, at least in theory, force down the price of productsand services accompanied by onerous boilerplate, thus opening up an opportunityfor boilerplate entrepreneurs to intervene with terms more palatable toconsumers.  Yet that has not happened inthe adventure travel context.  Why not? 

Let me offer a few possibilities.  One possibility, of course, is that consumersare not actually willing to pay for the ability to hold tour companies liable –they prefer lower prices instead.  I’llreturn to that possibility in a moment.  However,it is also possible that consumers have not fully impounded the informationregarding liability waiver into product price. This is not because such consumers are unsophisticated, or don’t read,or are helpless against big bad travel companies, but because the purchase of anadventure travel package is a complex decision, requiring the trade-off ofnumerous factors affecting the quality and price of the product/service + boilerplatepackage.  And most of us just aren’t verygood at that.  Consumers are not justweighing the costs and benefits of various liability waivers against price, buta multitude of factors, including the reputation of the company for both funand safety, the type of travel and activities offered, and even other elementsof the contract, such as the cancellation policy and the availability of travelinsurance to cover the type of travel and activities in question.

This analysis, if true, is both good and bad for Peggy’spurposes. On the plus side, it supports her fears of market failure, even whenconsumers are relatively sophisticated and informed.  But at the same time, it cautions against thepossible efficacy or easy application of her solution.  If calculating the optimal trade-offs amongprice and the numerous other elements of the product/service + boilerplateadventure tour package is decisionally complex for experienced consumers oftravel services, then it is difficult for courts and lawmakers as well.  Perhaps the legislature was right in craftinga default rule placing liability for negligence on the tour operator, in thehopes of creating incentives for such tour operators to exercise care beforeputting their clients at risk.  Andperhaps consumers are mistaken in signing away those rights, thus “deleting”rights thoughtfully granted by the legislature. Peggy places a high value on democratically-generated rules such asthese, and demonstrates more faith in such democratic processes than in marketones. 

Perhaps she is right. But, perhaps, the legislature simply got this one wrong. Perhapsconsumers believe that there are cheaper and more effective mechanisms fordifferentiating trustworthy and careful adventure tour operators fromuntrustworthy and negligent ones. Perhaps consumers have quite rationally concluded that firm reputation; theirown repeated positive experiences with a particular operator; the priorimpressions of friends, neighbors, and other experienced travelers; and thirdparties, such as travel insurance companies, all have helped them to choose atour operator whose risk of negligent operation is – if not fully controllable– at least tolerable, given the price paid.

With Boilerplate,Peggy Radin has hit another home run.  Aswith her work on contested commodities, she has forced me to reconsider mypriors, and has poked some holes in my assumptions.  But in both cases a basic ideologicaldifference — the extent to which we trust private ordering as compared to public– prevents a full meeting of the minds.  

[Posted, on Kim Krawiec’s behalf, by JT]