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SJC Finds that a Public Utility’s Tariff Limits Liability in Gross Negligence Case

Recently, in Maryland Casualty Co. v. NSTAR Electric Co., 471 Mass. 416 (2015), the Massachusetts Supreme Judicial Court held that an approved tariff can limit a public utility company’s liability for consequential damages, including business losses, that resulted from gross negligence.

On December 8, 2006, two NSTAR employees were performing work on electrical equipment in a building in Cambridge when an explosion occurred, causing significant damage to the property insured by the plaintiffs. The plaintiffs brought a subrogation action against NSTAR seeking to recover damages arising out of the explosion.  

NSTAR moved for partial summary judgment and the Superior Court decided that the claims paid by the insurers were solely for business interruption losses, which were not recoverable under the limitation of liability clause in NSTAR’s tariff. The tariff stated as follows: “for non-residential Customers served under general service rates, the Company shall not be liable in contract, in tort (including negligence and [G.L. c.] 93A), strict liability or otherwise for any special indirect or consequential damages.”  

Plaintiffs appealed, and the issue before the SJC was whether the plaintiffs’ claims for consequential damages were barred by the limitation of liability clause in the tariff. The SJC performed a two-step analysis in interpreting the tariff. 

First, the SJC looked to the scope of the limitation liability clause in the tariff and rejected plaintiffs’ argument that the language did not clearly preclude liability for claims based on negligence. The Court concluded that a specific reference to gross negligence was unnecessary, and pointed to the language in the clause limiting liability “in tort,” holding that a cause of action for gross negligence is a form of liability “in tort.”  

Second, the SJC analyzed whether or not the clause was reasonable in determining its enforceability.  Plaintiffs argued the clause was unreasonable because it limited liability for gross negligence, and pointed to the contractual rule against enforcing releases for gross negligence.  However, the Court drew a distinction between contracts and tariffs, concluding that the regulatory process by which tariffs are set already provides for a framework for protecting against unfair limitations on liability.  In the SJC’s view, the fact that NSTAR’s tariff had undergone a strict analysis by the DPU before it was approved tended to support the conclusion that its terms were reasonable. Also supporting the reasonableness requirement was the fact that the clause limited NSTAR from liability for a particular type of damages asserted by a particular class of customers, rather than affording blanket protection to NSTAR for any liability arising from its negligence or gross negligence.

While this decision does not preclude recovery completely, it greatly restricts plaintiffs’ potential recovery from the utility, limiting any award to direct damages and shielding against exposure to uncertain and unpredictable consequential damages

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