Decided: December 2, 2015

Industrial Fumigant Co. (Industrial) applied pesticide at Severn Peanut Co.’s (Severn) peanut storage dome, resulting in a fire and explosion.  The Fourth Circuit found that Severn’s claim against Industrial for breach of contract was barred by the contract between the parties, and Severn’s claims for negligence were likely barred by North Carolina’s economic loss doctrine.  On this basis, the Fourth Circuit upheld the District Court’s grant of summary judgment to Industrial on all claims.  

In April, 2009, Industrial and Severn entered into a contract for Industrial to apply the pesticide phosphine at Severn’s peanut storage dome in Severn, North Carolina.  The contract required Industrial to apply the pesticide in the correct manner, contained an agreed upon price of $8,604, and noted that the price was not sufficient for Industrial to assume any risk of consequential damages.  On August 4, 2009, Industrial applied phosphine to the dome in such a way that phosphine tablets piled up on one another, which was against the rules for usage noted on the phosphine label.  As a result, a fire broke out on August 10, and continued despite fire fighting efforts until August 29, when an explosion occurred, causing major damage to the peanut dome, and the loss of nearly 20,000,000 pounds of peanuts.  Severn’s insurer ultimately paid more than 19 million dollars for loss of peanuts, loss of income, damage to the dome, and fire fighting costs.  

In January, 2012, Severn, its insurer, and the insurer’s parent company brought suit in federal court against Industrial and its parent company for breach of contract, negligence, and negligence per se.  In March, the District Court granted summary judgment to Industrial on the breach of contract claim, finding that the consequential damages claim was barred by the contract between the parties.  After briefing on the issue of contributory negligence, the District Court granted summary judgment to Industrial on the negligence claims, finding that Severn was contributorily negligent.  Severn appealed both grants of summary judgment to the Fourth Circuit.

The Fourth Circuit first found that the contract between Severn and Industrial barred Severn’s breach of contract claim.  The Fourth Circuit noted that North Carolina policy generally gives parties the freedom to contract as they wish.  Further, in this case, Severn and Industrial were sophisticated parties who bargained for a contract with a clause limiting consequential damages, the contract was neither unconscionable nor against public policy, and Severn purchased, and received payment from, an insurance policy to cover the risk from breach of contract.

The Fourth Circuit next held that there were material issues of fact in relation to Severn’s contributory negligence, such that summary judgment on that ground was inappropriate.  The Fourth Circuit nonetheless upheld summary judgment for Industrial on the negligence claims based upon North Carolina’s economic loss doctrine.  The economic loss doctrine generally will not allow a tort claim for breach of contract.  Because the contract here included a consequential damages exclusion, Severn would likely be unable to bring negligence claims for Industrial’s breach of contract.  On the basis of these holdings, the Fourth Circuit upheld the grants of summary judgment to Industrial on both the breach of contract and negligence claims.

Full Opinion

Katherine H. Flynn


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