If You Want To Shield Yourself From Tort Liability, Just Say So
Have you ever opened a fresh bag of sunflower seeds and thought “man, I wonder how the interaction between tort and contract law bears on this snack”? If you haven’t, then that’s good news for your mental health. If you have, then this is just the post for you.
In Certain Underwriters v. TNA NA Manufacturing, Inc., 372 Or. 64 (2024)[1], the Oregon Supreme Court considered whether a party had successfully contracted away its tort liability (specifically, for negligence). The court concluded that it had not. The language of the agreement was simply too vague and the party failed to make clear that it was attempting to shield itself from negligence liability.
I’ll go through some background points, cover the decision, and then provide some thoughts about what you can take away from this decision.
Background
SunOpta sells plant-based food, including sunflower seeds. Around eight years ago, SunOpta was forced to recall a host of its processed sunflower seeds due to a bacterial outbreak. SunOpta had processed these seeds with equipment it purchased from FDI.[2] After paying out insurance proceeds, SunOpta’s insurance company sued FDI for negligence and strict products liability (i.e., torts).
FDI moved for summary judgment, arguing that the purchase contract between the parties shielded FDI from tort liability. The trial court agreed, relying on caselaw which allowed a party to contract away tort liability as long as the contractual provisions were “clear and unequivocal.” According to the trial court, four independent provisions of the contract immunized FDI from liability.
The Court of Appeals affirmed, concluding that a single provision of the purchase contract titled “Warranties” broadly shielded FDI from liability.
The Decision
The Oregon Supreme Court reversed. The court began with a reminder that Oregon law presumes parties do not intend to contract away tort liability, and so any provision purporting to contract away tort liability has to be “clear and unequivocal.” Whether language is clear and unequivocal turns on the clarity of the language and the potential inequities of a liability shield.
Turning to the text of the contract at issue, the court quickly disposed of the three provisions that the Court of Appeals agreed were insufficient. It then turned to Section 11, where it did not agree with the lower court. For those curious, here is the language of the provision so that you may judge its clarity for yourself:
Section 11, WARRANTIES
There are no warranties, express or implied, including the warranty of merchantability and the warranty of fitness for a particular purpose extending beyond those set forth in [s]ection 5. Seller’s liability shall be limited to the repair or replacement of any defective equipment and the parties agree that this shall be Purchaser’s sole and exclusive remedy. Seller 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. Seller shall under no circumstances be liable for the cost of labor, raw materials used or lost in testing or experimental or production operations of any equipment sold, whether such testing, production or experimentation is done under the supervision of a representative of the Seller or of any employee or other representative of the Purchaser.
The court considered (and rejected) four reasons for concluding that this immunized the defendant from liability for negligence:
First, the court looked at the phrase “[s]eller shall not be liable, in any event, for loss of profits, incidental or consequential damages[.]” According to the court, this could reasonably be interpreted to refer to damages other than those arising from the seller’s negligence.
Second, the court concluded that it was not sufficient that this alleged immunization was placed under a header titled “WARRANTIES.” As the court pointed out, the Uniform Commercial Code requires that warranty disclaimers be conspicuous, so the inclusion of this section would not necessarily alert someone to the waiver of tort liability.
Third, the reference to “federal, state, or local laws” wasn’t enough, given that contracts in an industry like food processing often interact with numerous regulatory requirements, so this phrase could easily be understood as referring to damages flowing from regulatory penalties.
Fourth, the broad reference to “any liability” is insufficient to cover tort liability. Given that this issue arose in the context of a contract, the court determined that it would be reasonable to interpret “liability” to refer only to contract liability—not tort liability.
The court also provided some guidance for future contracts. Although it has previously held that the word “negligence” need not necessarily be used to create an effective tort shield, the court all but said that parties should use the word “negligence.” To be sure, it hedged a bit by saying that “no magic words are, per se, required.” 372 Or. at 78. But the court advised that “prudent and cautious contract drafters in Oregon might consider their use.” Id.
Takeaways and Questions
1. Certain Underwriters sends a pretty clear message to contract drafters: If you want to contractually protect your client from tort liability, then use the word “negligence.” Sure, if you don’t use the word, you may get away with it because “no magic words” are officially required. Id. But, unless there’s a really good reason not to use the word “negligence,” you’re better off including it.
2. The court dusted off an old case that hasn’t gotten much love in the past few decades: Southern Pac. Co. v. Layman, 173 Or. 275 (1944). In Layman, the court declined to hold that the phrase “any and all loss” clearly and unequivocally shielded a defendant from tort liability. This provided the foundation for the court’s new conclusion that “any liability” was also insufficient. Given this revival of Layman, the court is making clear that general language simply won’t cut it for a tort shield. As discussed in the previous point, your best bet is to specifically name negligence liability, rather than relying on an umbrella phrase like “all liability.”
3. For those of you who read my prior two points and still want to make the language less conspicuous, then I have one potentially helpful comment. When discussing the reference to “federal, state, or local laws,” the court latched onto the fact that the food industry is highly-regulated, and so this phrase could be understood to be referring to regulatory laws. It’s possible, then, that in a far less regulated industry, the phrase “federal, state, or local laws” could be read to capture tort liability. Given my other two takeaways, though, I’m skeptical that the opinion would be narrowed in this way. The court is not being coy about its skepticism for subtle tort shields.
If you have questions about this appeal or any other appeal, contact me at JosephLevy@MarkowitzHerbold.com.
[1] I’ve shortened the name of the case to avoid scaring away readers just by citing the case, but for those who are interested, the full citation is Certain Underwriters at Lloyd’s London Represented by Catlin Syndicates 2003 and 1209, Liberty Syndicate 4472, and Novae Syndicate 2007 v. TNA NA Manufacturing, Inc., 372 Or. 64 (2023).
[2] Defendant TNA is FDI’s successor-in-interest, but I will exclusively refer to FDI in this post.
Good for the Oregon Supremes.