The Missouri Court of Appeals for the Eastern District recently upheld a limitation of liability clause contained in an invoice between two commercial “sophisticated” businesses, holding that the effect of the limitation is not dependent on the “sophistication” of the business in the underlying transaction.
In National Information Solutions, Inc. v. Cord Moving & Storage Company, Inc., No. ED 101636 (February 24, 2015), the Court of Appeals affirmed the granting of defendant Cord’s motion for summary judgment based on a limitation of liability provision in an Office Relocation Agreement to move the contents of NISC’s warehouse to a new location. The one-page Agreement contained a clause in the middle of the only page of agreement, in bold typeface, larger than the rest of the contract, that read: Insurance: Cord’s liability is $.30 per pound, per article. If you require additional insurance, you can explore options with your present insurance carrier, or call an independent cargo insurance provider.
During the move by Cord, a copier was damaged. NISC filed suit alleging that Cord was negligent in failing to properly secure the copier. Cord asserted, as an affirmative defense, that the Office Relocation Agreement limited Cord’s liability to $.30 per pound. Cord moved for summary judgment. NISC argued in opposition to the motion that the limitation on liability clause was not valid because the Agreement did not explicitly refer to “negligence” or similar language. Cord responded that because the Agreement was between “sophisticated commercial entities”, less precise language was acceptable to limit liability. The trial court granted Cord’s summary judgment motion.
In reviewing NISC’s appeal of the granting of the motion, the Appellate Court noted that there was some confusion in prior Missouri Court decisions as to whether less precise language could be used in a limitation of liability clause depending upon whether both entities had to “sophisticated” in the precise transaction at issue or whether there could be a limitation if both parties, in general, were “sophisticated” commercial entities.
The Appellate Court held that Missouri law only holds that the parties be “sophisticated” commercial entities in general. In this case there was evidence NISC employee who signed the Agreement knew about the limitation of liability clause and was familiar with the need to obtain insurance to recover and damages above limitation amounts, and that NISC employed over 740 people in 47 states, processed $12 billion in annual billings, and had a payroll of over $1 billion.
The take away from this case is simple. For commercial businesses, it is extremely important to read and understand the effect of all clauses in a contract especially limitation of liability clauses.