Danisco Ingredients USA, Inc. v. Kansas City Power & Light Co.

• Decision Date: 09 July 1999
• Docket Number: No. 82,266.,82,266.
• Citation: 986 P.2d 377,267 Kan. 760
• Parties: DANISCO INGREDIENTS USA, INC., Appellee, v. KANSAS CITY POWER & LIGHT COMPANY, Appellant.
• Court: Kansas Supreme Court

267 Kan. 760

986 P.2d 377

DANISCO INGREDIENTS USA, INC., Appellee, v. KANSAS CITY POWER & LIGHT COMPANY, Appellant.

No. 82,266.

Supreme Court of Kansas.

Opinion filed July 9, 1999.

Robert Gingrich, of Kansas City, Missouri, argued the cause, and Michael A. Rump, of Kansas City, Missouri, was with him on the briefs for appellant.

C. Edward Peterson, of Finnegan, Conrad & Peterson, L.C., of Kansas City, Missouri, argued the cause, and Jeremiah D. Finnegan, of the same firm, was with him on the brief for appellee. The opinion of the court was delivered by

DAVIS, J.:

The Western District of the Missouri Court of Appeals seeks clarification of Kansas law regarding liability limitations contained in tariffs adopted by Kansas City Power & Light (KCP&L) and approved by the Kansas Corporation Commission (KCC). The tariffs purport to relieve KCP&L from liability for both simple negligence and wanton misconduct. The questions certified under the Kansas Uniform Certification of Questions of Law Act, K.S.A. 60-3201 et seq., concern both the reasonableness and enforcement of these tariffs.

Certified Questions

"(1) Was it unreasonable for the Kansas Corporation Commission to allow KCP&L's Rules 7.06 and 7.12 to become effective insofar as these Rules relieve KCP&L of liability for damages of any nature resulting from the utility's own (a) simple negligence, or (b) willful or wanton misconduct, or gross negligence, in regard to the supply of electric service?

"(2) If you find in answer to (1) above that it is reasonable for the Kansas Corporation Commission to allow a tariff to become effective which relieves KCP&L from liability for its own simple negligence, but that it is not reasonable to allow a tariff to become effective to the extent that it relieves KCP&L from liability for its willful or wanton misconduct or gross negligence, should we strike down or refuse to enforce the entire tariff, or only so much of it as purports to limit liability for gross negligence or willful or wanton misconduct, and enforce it as to simple negligence?"

Answer to certified questions

It was reasonable for the KCC to allow KCP&L's Rules 7.06 and 7.12 to become effective insofar as these rules relieve KCP&L of liability for damages of any nature resulting from the utility's own simple negligence. However, it was unreasonable for the KCC to allow the same rules to relieve KCP&L of liability for damages of any nature resulting from the utility's willful or wanton misconduct. The Western District of the Missouri Court of Appeals should enforce the limitations of liability contained in Rules 7.06 and 7.12 as to simple negligence only.

Factual Background

The following factual statement was set out by the Missouri Court of Appeals pursuant to K.S.A. 60-3203:

"KCP&L is an electric public utility doing business in Missouri and Kansas. Danisco manufactures food additives at a production facility located in the New Century Airport, near Gardner, Kansas, and Danisco is one of KCP&L's Kansas electric customers. Danisco's production facility uses a high vacuum process which cannot tolerate even the briefest interruption of power. Danisco sued KCP&L to recover its economic damages related to three power outages which occurred in 1993.

"The first power outage occurred on September 2, 1993. An underground power cable failure caused a substation circuit breaker to instantly open and close, causing a `momentary' interruption. [A `momentary' interruption is an interruption which lasts less than 1 second.] KCP&L claims the reason for the underground cable failure is unknown.

"The second power interruption occurred on September 27, 1993. This outage was preceded by a low-voltage report from Danisco. In an effort to increase the voltage on the circuit serving Danisco's facility, KCP&L linemen undertook switching procedures to reconfigure the circuit providing service to Danisco. During these procedures, a line switch failed in one location, and at or near the same time power monitoring equipment failed in another location. The two equipment failures resulted in an interruption in the supply of power to Danisco which lasted approximately 5 hours. As a result of this outage, Danisco was not able to operate its production facility for up to 80 hours.

"The third interruption occurred on November 24, 1993. On that day, KCP&L claims a substation circuit breaker opened and closed for some unknown reason. Substation circuit breakers will open and close due to storms, lightning, varmints on the wires, or when electrical devices or equipment somewhere on the circuit fail.

"As a result of these interruptions of power, Danisco claims damages based on `lost opportunity' to produce food additives for the period during the power outages, as well as the time period it took to restore Danisco's production line back to full operation after a power interruption. In Count I of its Petition, Danisco claims that these damages were caused by KCP&L's negligence. In Count II of its Petition, Danisco claims that KCP&L knew that Danisco would suffer unavoidable damages if it lost power, but willfully failed to inform it of the danger of a power outage or to protect it from such an outage. Although Danisco claims lost profits in the amount of $253,271.75, a contingent settlement has apparently been reached below, with the result that, if the courts uphold the determination below that KCP&L's limitation on liability is unenforceable, then KCP&L will pay the sum of $100,000.00 in damages to Danisco.

"KCP&L argues that at all times relevant in this case, it had on file as part of its tariff `General Rules and Regulations Applying to Electric Service' which had been allowed to become effective by the KCC under the power and authority the Kansas legislature gave the KCC to approve just and reasonable rates. KCP&L argues that, once allowed to become effective, these tariffs, including KCP&L's General Rules 7.06 and 7.12, are entitled to be given the force and effect of law and that these rules limit KCP&L's liability for power service interruptions.

"Rule 7.06 determines KCP&L's duty to supply continuous electrical energy to customers. It provides that:

`The Company will use reasonable diligence to supply continuous electric service to the customer but does not guarantee the supply of electric service against irregularities or interruptions. The Company shall not be considered in default of its service agreement with the customer and shall not otherwise be liable for any damages occasioned by any irregularity or interruption of electric service.'

"Rule 7.12 determines KCP&L's liability to its customers generally. It provides that:

The Company shall not be considered in default of its service agreement and shall not be liable on account of any failure by the Company to perform any obligation if prevented from fulfilling such obligation by reason of any delivery delay, breakdown, or failure of or damage to facilities, an electric disturbance originating on or transmitted through electric systems with which the Company's system is interconnected, act of God or public enemy, strike or other labor disturbance involving the Company or the Customer, civil, military, or governmental authority, or any cause beyond the control of the Company.'

"The trial court held that these limitations of liability were unreasonable and, so, unenforceable and invalid, citing to this Court's decision in Forte Hotels, Inc. v. Kansas City Power & Light Company, 913 S.W.2d 803 (Mo. App. 1995). In that case, this Court did hold these rules unreasonable in reliance on two Kansas Supreme Court cases, Shawnee Milling Co. v. Postal Telegraph Cable Co., 101 Kan. 307, 166 P[ac.] 493 (1917), and McNally Pittsburg Mfg. Corp. v. Western Union Tel. Co., 186 Kan. 709, 353 P.2d 199, 204 (1960). On appeal, KCP&L claims that these issues were not properly decided in Forte Hotels, that under Kansas law the trial court should have given the force and effect of law to KCP&L's Rules limiting its liability herein, and that the trial court erred in substituting its judgment for that of the KCC by refusing to find KCP&L's continuity and liability rules reasonable and enforceable under the facts of this case."

The Missouri Court of Appeals stated with regard to the questions certified:

"[T]his Court concludes that, under prior Kansas decisions, we have the authority to determine whether KCP&L's Rules are unreasonable and therefore unenforceable, despite the fact that they have been allowed to become effective by the KCC. This Court also concludes that these Rules are unreasonable, under prior Kansas decisions, to the extent they purport to relieve KCP&L from damages resulting from the company's willful and wanton misconduct or what is sometimes referred to as `gross negligence.' This Court is unable to determine, however, whether the Kansas Supreme Court (1) would find these tariffs reasonable to the extent that they relieve KCP&L from damages resulting from simple negligence, and, if so, (2) whether it would enforce them as to claims of simple negligence, or would invalidate them entirely because of their overbreadth in purporting to also relieve KCP&L of its liability for willful or wanton misconduct."

Scope of Review

KCP&L contends that our scope of review as to the reasonableness of limitations contained in tariff Rules 7.06 and 7.12 is governed by the Act for Judicial Review and Civil Enforcement of Agency Actions (KJRA), K.S.A. 77-601 et seq. Specifically, KCP&L argues that our scope of review is governed by K.S.A. 77-621(c)(8), which provides that the court may reverse an agency decision if it determines "the agency action is otherwise unreasonable, arbitrary or capricious." Thus, according to KCP&L's argument, the question on appeal is whether the KCC's approval of the liability limitations in Rules 7.06 and 7.12 was unreasonable, arbitrary, or capricious.

Danisco contends that the KJRA is inapplicable in this...