It has long been the general rule in Missouri that for a party to contractually release itself from or limit liability for its own future negligence, the language in the contract must be clear, unequivocal, conspicuous and must explicitly include the word “negligence” or “fault.” However, when the contract is negotiated at arm’s length between “sophisticated commercial entities”, a party can release itself from or limit liability with less precise language.
In National Information Solutions, Inc. (NISC) v. Cord Moving & Storage Co., NISC, a technology solutions company, entered into an agreement with Cord, a moving company, to move the contents of NISC’s warehouse. The contract limited Cord’s liability to $.30 cents per pound, per article and stated that if NISC wanted additional insurance, they should consult with their insurance carrier. During the move, an expensive copier was damaged and Cord paid NISC $450.00, which represented $.30 per pound for the damaged copier. NISC later sued Cord for the full amount of the copier. Cord argued that their liability was limited to $.30 cents per pound as stated in the contract. Furthermore, Cord went on to argue that because the agreement was between “sophisticated commercial entities”, the words “negligence” or “fault” did not have to be present in the contract to effectively limit future liability.
On appeal, NISC cited Village of Big Lake v. BNSF Railway Company, Inc., a 2014 Court of Appeals (Western District) decision, for the proposition that the critical issue is whether the parties “were sophisticated in the type of transaction” involved in the case, and argued that Cord had to prove NISC is sophisticated in the subject matter of the contact (, i.e., moving office equipment) to be considered a sophisticated commercial entity. Under this proffered rationale, NISC, a technology company, clearly was not experienced in moving office equipment and thus Cord could not limit its future liability without including the words “negligence” or “fault” in the contract.
However, the Court of Appeals for the Eastern District ruled that “type of transaction” could not be read so narrowly. After reviewing NSIC’s business practices, number of employees, revenues and the content of the negotiations, the Court held that NISC was experienced in this type of transaction with outside vendors, and thus properly considered a sophisticated commercial entity. NISC was a commercial business experienced in negotiating vendor agreements, and could not escape enforcement of the limitation on liability merely because it was “unfamiliar with moving contracts.”
This case is important in clarifying who will and will not be considered a “sophisticated commercial entity”, in determining the enforceability of language limiting a party’s liability for negligence. To be considered a sophisticated commercial entity, a party need not be sophisticated in the precise subject matter of the underlying transaction, only experienced in entering into transactions of that kind (e.g., vendor contracts).
For purposes of drafting a contract clause limiting future liability for negligence, even among sophisticated businesses, the most prudent course of action is always to include clear, unequivocal, conspicuous language that explicitly includes the word “negligence” or “fault.” This avoids ever having to get into a debate about whether the contract was between “sophisticated commercial entities”. But in business agreements where this has not occurred, it is comforting to know that the Missouri courts are taking a reasoned, common-sense approach as to whether the contracting parties meet this standard.
View the full opinion here.