One of the issues that will be debated at length before the next Presidential election is tort reform and the limitation of damages in litigation. While legislation may be passed which would limit damages recoverable in such actions, companies need not wait for the passage of such legislation to protect themselves from excessive damage claims. As the Seventh Circuit Court of Appeals recently held in Southern Illinois Riverboat Casino Cruises, Inc. v. Triangle Insulation & Sheet Metal Co., a properly drafted limitation of damages provision contained on a product label is enforceable under the law and can limit the amount of damages recoverable in litigation.
Players Island Casino (“Players”) bought a sealant used in the marine industry, Encacel V, from Triangle Insulation & Sheet Metal Co. (“Triangle”) for use in a project to insulate air-conditioning ducts on Players’ casino boat. After the sealant was applied, fumes from the sealant forced Players to close its casino boat for several days. As a result thereof, Players filed suit against Triangle asserting breach of express and implied warranties, and claiming damages for the cost of removing the sealant and for the lost income while the casino boat was closed. In response, Triangle asserted that the damage limitation provision contained on the sealant’s label limited Players’ damages to the purchase price of the sealant. The label provided as follows:
Manufacturer and/or seller shall not be responsible, obligated or liable for any application or use of or to which the products may be put, either singly or in combination with other products or ingredients. It being expressly understood and agreed that the manufacturer’s and/or seller’s liability shall in no event exceed the purchase price.
In upholding the damage limitation provision on the label, the court noted that the Uniform Commercial Code (the “Code”), which governs contracts for the purchase of goods, provides that remedy and limitation of damage provisions are reasonable and enforceable as long as they do not materially alter the contract between the parties. The Code further provides that such a provision does not materially alter the parties’ contract unless the provision either fails in its essential purpose, i.e., the remedy does not correct product defects or causes unreasonable delay in replacement, or the limit on consequential damages is unconscionable.
Relying on the Code, the court rejected Players’ argument that the label’s damage limitation provision was unenforceable because it materially altered the parties’ contract. The court found the label’s limitation provision was reasonable and enforceable as long as the provision did not fail in its essential purpose or was unconscionable. The court held that Players failed to challenge the validity of the label’s damage limitation provision on these limited grounds; therefore, Players’ damages were limited to the price paid for the sealant.
If you have a question regarding a damage limitation provision, or would like to add a damage limitation provision to your company’s product labels or contracts, please telephone a member of the Firm.