Case 9.1 Federal Court Case Business Contract Severn Peanut Co., Inc. and Travelers Property Casualty Company of America v. Industrial Fumigant Co., 807 F.3d 88 (2015), United States Court of Appeals for the Fourth Circuit

Facts: Industrial Fumigant Co. (IFC) is a commercial company that applies pesticides for customers. Severn Peanut Co., Inc. (Severn) is a large company that produces raw, roasted, and salted peanuts. Severn and IFC entered into a Pesticide Application Agreement (PAA) whereby IFC would use the pesticide phosphine to fumigate a peanut storage dome owned by Severn that contained 20 million pounds of peanuts. The contract provided that the payment was not sufficient to warrant IFC to assume the risk of incidental or consequential damages to Severn's property, product, equipment, downtime, or loss of business. The fumigation resulted in a fire and the explosion of the peanut dome, causing Severn the loss of the peanuts, loss of business, and cleanup costs. Severn's insurer, Travelers Property Casualty Company of America (Travelers), paid Severn more than $19 million to cover the cost of loss. Travelers then sued IFC to recover the insurance payments, alleging that IFC breached its contract with Severn by improperly applying a dangerous pesticide while fumigating Severn's peanut dome, and was therefore responsible for Severn's losses.

Issue: Is IFC liable for the losses suffered by Severn?

Critical Legal Thinking Questions:

Should sophisticated commercial entities have freedom to contract?

How did Severn protect against loss in this case?

What would be the consequences if the limitation on damages in the contract had not been enforced?