The Term “Negligence” Is Not Required, but Probably Necessary to Shield Contracting Party from Liability

From the Desk of Melanie Rose:

Contract clauses limiting a party’s tort liability, although generally disfavored, are enforced by Oregon courts when doing so clearly aligns with the intent of the parties. Intent is determined by considering the language of the contract, which must clearly and unequivocally waive tort liability.  

Claims Pointer:

The Oregon Supreme Court recently determined the limitation of liability clause in a sales contract was not sufficiently clear to shield a seller from the tort claims of a buyer.

Certain Underwriters at Lloyds London v. TNA NA Manufacturing, Inc., 372 Or. 64 (2024).

Facts:

SunOpta, Inc., a multinational food and mineral company, contracted with Food Design, Inc (“FDI”) to purchase food-processing equipment for its sunflower seed operation.

After an outbreak of listeria at SunOpta’s facility forced a sunflower seed recall, SunOpta made claims to its insurer, Lloyd’s London, and Lloyd’s London paid the full policy limit of $20 million to resolve SunOpta’s claims.

Lloyd’s London then brought a subrogation suit against FDI and TNA NA Manufacturing Inc (“TNA”), FDI’s successor in interest, for strict products liability and negligence. The trial court granted FDI and TNA’s motion for summary judgment because “the terms and conditions of the sales contract evinced an unambiguous intent to limit FDI’s liability and responsibility for tort damages.”

The Oregon Court of Appeals affirmed, determining that the relevant section “implicate[d] [a limitation on] liability beyond that arising under the contract.”

The Oregon Supreme Court reversed the Court of Appeals and remanded the case for further proceedings, holding the contract language did not insulate FDI and TNA from all potential tort liability.

Law:

Under Oregon Law, there is a strong presumption against “an intention to contract for immunity from the consequences of one’s own negligence.” Waterway Terminals v. P.S. Lord, 242 Or. 1, 19, 406 P.2d 556 (1965); see also Southern Pac. Co. v. Layman, 173 Or. 275, 280, 145 P.2d 295 (1944). An exculpatory contract will not be enforced unless “expressed in unequivocal language.” Waterway Terminals, 242 Or. at 19; see also Estey v. MacKenzie Eng’g Inc., 324 Or. 372, 376, 927 P.2d 86 (1996) (stating that the intention to immunize a party from liability for its own negligence must be clearly and unequivocally expressed).

Courts must consider both: (1) the language of the contract and (2) “‘the possibility of a harsh or inequitable result that would fall on one party’ if the other party was immunized from the consequences of its negligence.” Am. Wholesale Prods., 288 Or. App. 418, 423, 406 P.3d 163(quoting Estey, 324 Or. at 376).

Analysis:

The trial court, in concluding the contract insulated FDI from tort liability, relied on four provisions of the sales contract. The Oregon Court of Appeals and Supreme Court both held that the first three provisions relied on by the trial court “fail[ed] to effect a waiver of tort liability.”

The first two provisions could not be clear and unambiguous waivers of tort liability because they addressed contract requirements and remedies.

The third provision only expressly indemnified FDI from tort claims resulting from faulty installation or negligent operation of the equipment, and so did not clearly and unequivocally waive all tort liability.

In formulating its conclusion that the contract ultimately did immunize FDI from liability, the Court of Appeals relied on a provision of the contract under a section entitled “DISCLAIMERS”, which stated: “[FDI] shall not be liable, in any event, for loss of profits, incidental or consequential damages or failure of the equipment to comply with any federal, state or local laws.” The Court of Appeals “found the intent to waive tort liability through inference or implication, and through the use of broad language.” The Court of Appeals also determined that contracts containing a broad reference to “any liability” suggest an intention to limit any liability, whether in tort or under the contract.

However, the Oregon Supreme Court disagreed with the Court of Appeals analysis, holding that there was not a single permissible inference which would allow the above contract language to effectively shield FDI from tort liability for the claims brought by Lloyd’s London. The Oregon Supreme Court concluded that nothing in the disclaimer language, directly, and unequivocally waived tort liability because the language could “reasonably be read as a disclaimer of implied warranties.”

The Oregon Supreme Court also rejected the Court of Appeals analysis that broad references to “any liability” within the contract shielded FDI from tort liability because parties naturally interpret contract terms in the context of contractual obligations, and so broad language “may obscure as much as it clarifies.” Therefore, the court adhered to its analysis in Layman, and concluded that generic, broad language may be insufficiently specific to satisfy the clear and unequivocal requirement for a contractual release of tort liability to be effective.

Because the contract language in this case failed to satisfy the clear and unequivocal requirement, the court reversed the judgment of the circuit court and remanded the case for further proceedings.

The Big Picture:

A contract clause limiting tort liability must express that intention clearly and unequivocally. Parties seeking to shield themselves from tort liability must, in the words of the Oregon Supreme Court, “place the waiver beyond doubt.” Although use of the terms “negligence” and “tort” are not required under this most recent case law, it is difficult to imagine sufficiently clear contract language that does not use those terms.