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Language ideas for consequential-damages disclaimers from Fourth Circuit case

Contract drafters will be interested in Severn Peanut Co. v. Industrial Fumigant Co., No. 15-1063 (4th Cir. Dec. 2, 2015): The court of appeals upheld summary judgment in favor of a fumigation company, which had caused millions of dollars of damage to a customer’s peanut-storage dome. The court found that the service agreement’s exclusion of consequential damages precluded the damages sought by the customer and its insurance company. The court focused in part on the following language:

• “Severn and IFC are sophisticated commercial entities who entered into an arm’s length transaction.” Id., slip op. at 8.

DCT comment: This is likely to be worth putting into the limitation-of-liability provisions where it will be immediately seen by a reader, instead of far away in the general provisions (where an overzealous drafter might delete it as surplusage).

• “Their contract specified that ‘[t]he amounts payable by [Severn] [which was about $8,000] are not sufficient to warrant IFC assuming any risk of incidental or consequential damages,’ including risks to several itemized categories of damages: ‘property, product, equipment, downtime, or loss of business.’” Id. at 8-9 (non-italicized alteration marks by the court).

DCT comment: I like this plain, direct approach more than the curent Common Draft version, which says in part that “Each party acknowledges that this Agreement’s limitations of liability are material provisions of this Agreement, and that absent those limitations of liability, one or both of the parties would have declined to enter into this Agreement on the economic- and other terms stated in it.” I think I’ll incorporate something like this into the next Common Draft release.

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