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Valparaiso Univ. Law School

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Wednesday, October 5, 2011

Ooooh! New Posner Decision on Common Law Contractual Indemnity

Posner The case is Wilder Corporation of Delaware v. Thompson Drainage and Levee District.  Wilder owned 6600 acres of farmland in Illinois on which it grazed cattle.  At a certain point, it sold the land to The Nature Conservancy for $16.35 million, which then restored the land to its pre-20th-century condition as a flood plain wetland.  In so doing, it warranted that the land was not contaminated with petroleum.  That turned out not to be the case.  The Nature Conservancy sued and was awarded $800,000 in damages, although some of those damages related to a separate, but no doubt noisome breach involving "sewage lagoons." 

Wilder could not deny the smoking methane gun when it came to the sewage.  But while its cows produced waste products, petroleum was not one of them.  The blame for that product lay with defendant drainage district, which had stored petroleum on the land in question to run some water pumps for which the Nature Conservancy had no use.  

Wilder sued seeking common law indemnification.  It's problem, as Judge Posner explained, was that the Nature Conservancy's claim sounded in contract and not in tort, and there could be no recovery based on common law indemnification on a breach of contract claim.  

This is the kind of decision that Judge Posner was born to write.  He loves these cases, and it shows in the energy and the pure joy of the writing.  He arrives at his holding on page 6.  The rule common law indemnification for tort claims does not extend to contract claims.  He then spends an additional six pages explaining why this is a good rule.  

To summarize:

  1. To impose such damages on a third party would be inconsistent with the general rule that contracts damages must be foreseeable;
  2. Suit is barred by the economic loss rule;
  3. It would make the drainage district an insurer of Wilder, and one can't insure against a breach of contract as that would create a moral hazard; and 
  4. Wilder assumed the risk by including the warranty and by not insisting on a subrogation clause

It's a fun read.

[JT]

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