Seeking Damages of More than Just Peanuts!
(That was a terrible pun. Please let’s forget that I wrote it.)
A recent opinion out of the Fourth Circuit, Severn Peanut Co., Inc. v. Industrial Fumigant Co., No. 15-1063, upheld a clause in the parties’ contract limiting Industrial Fumigant’s (“IFC”) liability for consequential damages against arguments from Severn that the clause was unconscionable.
The parties entered into a contract whereby IFC promised to fumigate Severn’s peanut dome. (I didn’t know what this was, so I looked it up. Here are my Google Image search results, but more importantly, it turns out the Severn Volunteer Fire Department has actually uploaded to Facebook video from the Severn peanut dome fire in this case. The Internet is a wondrous place. Oh — spoiler alert — as our story continues, there’s going to be a fire in the peanut dome.) IFC agreed that it would use the pesticide in question “in a manner consistent with instructions . . . and precautions . . . .” Severn alleged that IFC threw around 49,000 tablets of the pesticide in one big pile, in a way contrary to the instructions of use and, indeed, heedless of warnings not to do this, and that, as a result (as you know if you watched the video), the tablets caught fire, smoldered despite all efforts to put them out, and eventually resulted in an explosion. Severn had an insurance policy under which it collected $19 million to cover the loss of the peanut dome, the peanuts inside it, and other various costs and lost income.
Severn, together with its insurer, then sued IFC for breach of contract and negligence. But IFC pointed out that the contract it had with Severn expressly limited its liability for consequential damages. The contract was price was $8,604, and the contract contained a clause stating that that sum was not “sufficient to warrant IFC assuming any risk of incidental or consequential damages.” The Fourth Circuit noted that such clauses are considered useful and efficient and parties are free to enter into agreements containing such clauses if they so desire. Severn tried to argue that the clause was unconscionable but the Fourth Circuit remarked that Severn and IFC were both sophisticated parties and that Severn had been free to try to negotiate that clause out of the bargain, if it so desired. The Fourth Circuit also noted that Severn had another option in the face of the limitation clause: procure insurance to cover itself in case something went awry, which Severn in fact did. The Fourth Circuit concluded: “We are not presently considering the plight of a vulnerable member of the public adrift among the variegated hazards of a complex commercial world. Instead, we are considering a rather typical agreement among two commercial entities, and we may hold them to the contract’s terms.”
The Fourth Circuit also did away with Severn’s negligence claim, viewing it as an end run around the contract’s limitation clause. Severn, the court said, could not obtain through a tort cause of action what it bargained away under contract.