Food Safety Magazine, June/July 2009

nify them against any food-related claims. As a practical matter, a party is only likely to sign an indemnification clause if it has less negotiating power (which usually means less money) than the party demanding indemnification. In addition to being of little comfort, you simply cannot recover much money from a small company.

More importantly, if there is a potentially company-breaking claim, it is quite possible that any party—large, small or in-between—who has signed an indemnification agreement will refuse to honor it. Instead of honoring its agreement, a party faced with a possible company-breaking claim will often refuse to indemnify (or defend), and will instead argue that it was not really their fault, and that the claim does not fall within the scope of the indemnification provision.

If the party who signed an indemnification clause refuses to “step up to the plate,” you will have to defend yourself against whoever is suing you, while suing the other party for indemnification. Needless to say, this is both complicated and expensive. Even though you are legally allowed to deny that you did anything wrong, while at the same time arguing that someone else should have to pay any amounts you would have had to pay if you had done something wrong, doing so presents many practical problems. This is especially true if you are trying to explain your case to a jury. Indeed, the whole reason you ask someone to sign an indemnification clause is because you do not want to have to hire lawyers and go to court. Instead, you want the other party to have to deal with the lawyers and the courts. If the party who agreed to indemnify you refuses to step up, you have just doubled your legal fees. Not only does that defeat the purpose of an indemnification clause, you have actually gone backwards, at least in the short term.

“…you should take steps to limit your risk if
something happens, despite your best efforts
to prevent it.”
Limiting Risk

So, if an indemnification clause is going to be difficult (or impossible) to obtain, and if it is unlikely to give you full protection in a major case, what can you do? You can limit, rather than shift, your liability. Contractually, this can be

done in three ways. First, you can disclaim warranties. Second, you can limit the types of damages for which you can be liable. Third, you can limit the dollar amount of the claims for which you can be liable.

Disclaimers of warranties are typically effective if they are in large enough print (the days of being able to hide disclaimers of warranties in the small print on the back of a contract have long since passed). If they are not unconscionable, disclaimers of warranties are generally effective in preventing a plaintiff from prevailing on strict liability or negligence claims; however, they usually cannot insulate a party from the consequences of intentional conduct. As a result, disclaimers of warranties are generally effective in reducing claims that a defendant simply “passed on” contaminated food. They are therefore attractive to distribution companies, who simply handle, but do not process, pack or repack food.

Disclaimers of warranties can even limit the claims of parties further “down the chain,” as long as those parties knew of the limitations before they purchased the food. They are less effective at reducing claims that a defendant affirmatively contaminated the food. This is because, depending on the type and manner of contamination, a plaintiff may be able to argue that the contamination was the result of reckless or intentional (as opposed to negligent) conduct. Such conduct is typically outside the scope of a disclaimer of warranties. In addition to failing to eliminate a claim that a defendant affirmatively contaminated food, disclaimers of warranties have a practical problem. Often, customers (at least customers paying full price) balk at buying something (especially food) in an “as is” condition. As a result, a company trying to disclaim all warranties may face a great deal of push-back from its customers.

A potential compromise might be to limit the types of damages for which a

defendant can be liable, rather than to disclaim warranties. Traditional limita-tion-of-liability clauses seek to eliminate liability for lost profits and other types of incidental or consequential damages. For example, Topps could have included a clause saying that its customers could not sue it for incidental costs (e.g., the cost of gathering, repacking and returning the allegedly contaminated hamburgers) as well as consequential damages (e.g., lost profits for not being able to sell the allegedly contaminated hamburgers). Such a clause would not, however, have prevented Topps’ customers from suing the company for the purchase price of the hamburgers, nor would it have prevented someone who actually got sick from suing whomever they bought the hamburgers from (or the retailer or distributor from passing the cost of the person’s illness back to Topps).

Limitations on liability often generate less push-back than disclaimers of warranties. This is because limitations on liability do not attempt to insulate the defendant from all liability flowing from its actions. Instead, limitations on liability simply try to quantify the potential liabilities. Most people (and companies) quickly agree that there have to be some limits to the “lost profits” or the “ consequential damages” that flow from a misdeed. Once they recognize the “slippery slope” that begins any time someone starts talking about consequential damages, many customers can be persuaded to agree to this type of limit on liability. While it would be difficult to convince someone that they had no remedy if they bought bad food, it may be possible to convince them that they could only sue if they actually got sick, and could only return the product for a re-fund if they did not get sick.