A Public Utility Can Limit All Liability For Breach Of Contract And Negligence

Novo Nordisk Pharmaceutical Industries, Inc. v. Carolina Power & Light Co., 2008 NCBC 16 (N.C. Super. Ct. Sept. 15, 2008)(Jolly)

As the North Carolina Business Court framed the issue in its opinion yesterday in Novo Nordisk Pharmaceutical Industries, Inc. v. Carolina Power & Light Co., it was "whether and to what extent a public utility contractually may limit its liability for subsequent acts pursuant to the filed rate doctrine, as adopted by the North Carolina Supreme Court."  The answer from Judge Jolly, in a case of first impression, was that such limitations of liability can be complete.

Novo Nordisk, a pharmaceutical manufacturer, asserted in its Complaint that CP&L had breached contracts to provide it with uninterrupted power.  The Plaintiff alleged that it had entered into these contracts because if it lost power, even briefly, the insulin it manufactured would be contaminated and a costly clean up process would be necessary.  The Complaint asserted that CP&L had breached those contracts on three occasions, causing it substantial damage, and made claims for breach of contract and negligence.

There were three contracts involved.  Two of them said that neither CP&L "nor its employees, its subcontractors, or suppliers shall be liable for any direct, indirect, general, special, incidental, exemplary, or consequential loss or damage of any nature arising out of their performance or non-performance hereunder."  The third contract contained similar language, but limited a recovery to "the total of monthly payments made by" Novo Nordisk.

Judge Jolly held that he was "forced to agree" that the limitations of liability in the contracts approved by the North Carolina Utilities Commission were valid as to both CP&L and its subcontractor.  He made this ruling based on the filed rate doctrine, "which provides that a plaintiff may not challenge a Commission-approved filed rate, including attendant contractual provisions, unless that challenge is made while the proposed rate is before the Utilities Commission for approval."

The Court noted that the liability limitations played a role in the rate being approved by the Utilities Commission, and stated that if the limitations were held invalid that the "price for the service . . . would remain the same.  This would effect an alteration of the relative position of the parties as approved by the Commission, and would constitute a collateral attack on the filed rate."

Novo Nordisk had argued that the limitations of liability should be void on public policy grounds, and that a public utility could not contract away liability for negligence in the regular course of its business.  The Court ruled, however, that the contracts involved "permanent on-site commercial power, which is not directly related to the public service," and that the limitations of liability in the contracts did not violate public policy.

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