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A Travelers Co. Inc. unit has lost a breach of contract case in which it had paid more than $19 million in damages in connection with a fire that destroyed almost 20 million pounds of peanuts that was allegedly caused by improper fumigation.
Severn, North Carolina-based Severn Peanut Co. and Fairfield, Connecticut-based Industrial Fumigant Co. had entered into a contract in April 2009 that required IFC to use phosphine, a pesticide, to fumigate a peanut storage dome owned by Severn, according to Wednesday's ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in Severn Peanut Co. Inc.; Meherrin Agriculture & Chemical Co.; Travelers Property Casualty Co. of America v. Industrial Fumigant Co.; Rollins Inc.
The contract, which provided that Severn pay IFC $8,604, included an exclusion for “incidental or consequential damages,” according to the ruling.
On Aug. 4, 2009, IFC dumped about 49,000 tablets of insecticide into Severn's peanut dome through a single access hatch. This caused the tablets to pile up on one another, and a fire began on Aug. 10 that continued to smolder despite firefighting efforts. Then, on Aug. 29, there was an explosion that led to sustained, extensive property damage, according to the ruling.
Travelers paid Severn more than $19 million to cover the loss of nearly 20 million pounds of peanuts, lost business income, the damage to the company's property, and Seven's remediation and fire suppression costs, according to the ruling.
In January 2012, Severn, its parent company and Travelers filed suit against IFC in U.S. District Court in Elizabeth City, North Carolina, stating its improper application of phosphine caused the fire, and charging the company with negligence and breach of contract.
The U.S. District Court granted IFC summary judgment, in part because it said the contract's consequential damage exclusion barred the breach of contract claim.
A three-judge appellate panel upheld the ruling. “Severn and IFC are sophisticated commercial entities who entered into an arm's length transaction,” said the ruling.
“We are not presently considering the plight of a vulnerable member of the public adrift among the variegated hazards of a complex commercial world.
“Instead, we are considering a rather typical agreement among two commercial entities, and we may hold them to the contract's terms,” said the appeals court in affirming the lower court ruling.