Oregon Case Law Update: Contextually Ambiguous Liability Waiver Does Not Limit Tort Liability

Oregon Case Law Update: Contextually Ambiguous Liability Waiver Does Not Limit Tort Liability 
From the desk of Smith Freed Eberhard: Many contracts contain limitations or waivers of liability, although lawyers and their clients often wonder whether these really work or how they can be made more effective.  Read on to discover a new roadmap showing which provisions do and do not work to limit a buyer’s tort remedies.
Claims Pointer: In this case arising out of the death of multiple dairy cows, the Oregon Court of Appeals held that a contractual limitation of liability was “contextually ambiguous” and therefore did not limit or preclude the plaintiffs’ tort claims. This case provides important insight into how to properly limit tort liability.
Kaste v. Land O’Lakes Purina Feed, LLC, 284 Or App 233 (March 21, 2017)
Neal and Nancy Kaste (“the Kastes”) operate a dairy farm.  They contracted with Land O’Lakes Purina Feed, LLC (“Land O’ Lakes”) to provide feed for their cows. The feed sickened several cows and killed others, causing the Kastes to incur veterinary expenses as well as business losses. The Kastes sued Land O’Lakes, alleging two contract claims—breach of contract and breach of warranty—and two tort claims—negligence and strict products liability. In Oregon, when the parties have a contract for the sale of goods, real estate or services, unless the contract contains an appropriate limitation of liability, the buyer can typically bring a separate tort claim (in addition to a breach of contract/warranty claim) when the loss involves bodily injury or property damages. The jury found for the Kastes on all of their claims, and the court gave them a judgment for a total of $750,000, allocating $89,197.73 to the contract and warranty claims, and the remaining $660,802.27 to the negligence and strict products liability claims.
Land O’Lakes appealed, arguing that the trial court should have dismissed the Kastes’ tort claims based on the following limitation of liability provision in the contract:
“LAND O’LAKES SHALL IN NO EVENT BE LIABLE TO BUYER FOR CONSEQUENTIAL DAMAGES; AND LAND O’LAKES LIABILITY FOR DAMAGES SHALL IN NO EVENT EXCEED THE PURCHASE PRICE OF THE PARTICULAR SHIPMENT WITH RESPECT TO WHICH A CLAIM IS MADE.”
Land O’Lakes argued that this language unambiguously barred the Kastes’ tort claims because their tort damages amount to “consequential damages”; the cows were injured or killed as a consequence of eating contaminated feed.  Land O’Lakes also argued that the Kastes’ total recovery on all claims should be limited to the purchase price of the feed.
The Court of Appeals disagreed with Land O’Lakes, holding that the context of the limitation language – where the language was located – made the provision ambiguous. The provision which included the language was entitled “Exclusions of Warranties,” and the first two sentences of the provision focused on the contract concept of warranties and emphasized that Land O’Lakes’ sole warranty regarding its feed was that it would meet the standards described in the contract. The provision also referenced “breach of warranty” and “consequential damages,” further suggesting that the focus of the provision was on contract claims. For the court, the words in the heading and these contract-centered terms suggested that the provision as a whole was intended to address warranties and contractual standards, along with the remedies for breaches of those standards, and not necessarily to limit tort claims.  In sum, the court found that the provision could reasonably be read to apply solely to contract claims, that it was ambiguous whether the parties intended the provision applied to tort claims, and, as a result, the provision would not apply to exclude or limit the amount of the Kastes’ tort claims.
In arriving at this conclusion the court analyzed other liability limitation cases, and in doing so demonstrated what constitutes an effective waiver.  The following language was evaluated:
Effective – specifically limit “tort” remedies (K Lines case) – “the foregoing shall be Buyer’s sole and exclusive remedy, whether in contract, tort, or otherwise.” This provision was upheld a “model” for parties seeking to limit tort remedies; “By specifically referring to tort remedies, the provision unambiguously indicated that the contractual limitations on remedy applied regardless of what type of claim a buyer might have.”
Effective – specifically limit “any loss” (Atlas Mutual Ins. case) – “any loss, injury or damages to person or property.”  This provision does not explicitly refer to tort remedies, but contains a broad disclaimer of liability.  The court held that the term “any loss” had “unambiguously manifest[ed] defendant’s intent to be free from all liability arising ‘from any cause’”.
Less Effective (Northwest Pine Products case) – “ANY LIABILITY … ARISING OUT OF ANY MATERIAL OR SERVICES PROVIDED HEREUNDER SHALL NOT EXCEED THE COST OF CORRECTING OR REPLACING SUCH DEFECTIVE MATERIALS… IN NO EVENT SHALL [SELLER] BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION… LOSS OF USE.”  The court acknowledged that the Northwest Pine Products language bears the strongest resemblance to the Land O’Lakes language, nonetheless, it held that the language in Northwest Pine Products (upheld by that court) was different because it was not included in a provision focused on contract warranties but was placed instead in a separate section labeled “Limitations of Liability.” It also referred to a limit on “any liability,” suggesting the parties intended for the language to limit any liability, regardless of whether it arose in tort or contract. Moreover, it defined “consequential damages” as including “loss of revenue.” By contrast, the Land O’Lakes provision did not discuss “any” or “all” liability or losses, it did not apply a specific definition of “consequential damages” to include injury or death or loss of revenue, and it was located in a section of the contract discussing warranties rather than a general section addressing limitations on liability.
Ultimately, the court held that because the provision in Land O’Lakes’ contract could reasonably be interpreted to apply only to contract claims, it was ambiguous as to whether it applied to the Kastes’ tort claims. Therefore, the language did not prevent the Kastes from bringing tort claims or limiting the amount of their tort damages.
From a contract drafting perspective, the takeaways from this case are to:

• Include limitations of liability language under separate, clear, highlighted headings such as LIMITATIONS OF LIABILITY – not under headings labeled “Exclusions of Warranties”;

• Use the broadest waiver language possible – “any loss”; and

• Specifically limit “tort” remedies.

The over-arching goal in drafting limitation of liability language is to put the other side on unambiguous, LOUD NOTICE that their rights are being affected.  Vaguely worded or fine print language does not work.  In other words, it is perfectly reasonable to sell a product, service or real estate AS-IS, or by other limiting terms, but those terms should be abundantly clear.  It is also important to follow the court’s guidance to maximize the effect of your words.
View full opinion at: http://www.publications.ojd.state.or.us/docs/A156764.pdf
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.
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