Danisco Ingredients USA, Inc. v. Kansas City Power & Light Co., No. WD

CourtCourt of Appeal of Missouri (US)
Writing for the CourtBefore Presiding Judge ALBERT A. RIEDERER; LAURA DENVIR STITH; ROBERT G. ULRICH; Laura Denvir Stith; Robert G. Ulrich; Albert A. Riederer
Citation999 S.W.2d 326
PartiesDANISCO INGREDIENTS USA, INC., Plaintiff-Respondent, v. KANSAS CITY POWER & LIGHT COMPANY, Defendant-Appellant. 55347.
Docket NumberNo. WD
Decision Date14 September 1999

Page 326

999 S.W.2d 326
DANISCO INGREDIENTS USA, INC., Plaintiff-Respondent,
v.
KANSAS CITY POWER & LIGHT COMPANY, Defendant-Appellant.
No. WD 55347.
Missouri Court of Appeals,
Western District.
Sept. 14, 1999.

Page 327

Robert P. Gingrich, Jr., Kansas City, for appellant.

Jeremiah D. Finnegan, Kansas City, for respondent.

Before Presiding Judge ALBERT A. RIEDERER, Judge ROBERT G. ULRICH and Judge LAURA DENVIR STITH.

LAURA DENVIR STITH, Judge.

Defendant-Appellant KCP & L appeals the trial court's grant of summary judgment to Plaintiff-Respondent Danisco Ingredients USA, Inc., on Danisco's claim against KCP & L for damages arising out of Danisco's loss of electrical power on three separate occasions. The trial court recognized that Rules 7.06 and 7.12 of KCP & L's General Rules and Regulations Applying to Electric Service, adopted as part of its tariff filed with and allowed to become effective by the Kansas Corporation Commission (KCC), purported to relieve KCP & L of all liability for losses caused by KCP & L's negligence or by its gross negligence or willful and wanton misconduct. The court found these disclaimers to be unenforceable as against public policy, however, and that KCP & L therefore could be held liable for Danisco's damages caused by KCP & L's negligence or willful misconduct.

KCP & L appealed, arguing that the limitations of liability contained in its tariff were valid. Because the law of Kansas is determinative of the issues pending before this Court and no controlling precedent then existed within the existing corpus of Kansas law, we certified two questions concerning the validity of these limitations to the Kansas Supreme Court under K.S.A. Section 60-3201. That Court ruled that the portions of Rules 7.06 and 7.12

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contained in KCP & L's tariffs which purport to limit KCP & L's liability for its own willful and wanton misconduct are void and unenforceable as a matter of public policy, but that the rules are effective and enforceable to the extent that they limit KCP & L's liability for simple negligence. Accordingly, we reverse summary judgment for Danisco on its claim against KCP & L in Count I for simple negligence, and remand for entry of judgment in favor of KCP & L on those claims. We reverse summary judgment for Danisco on its claim against KCP & L in Count II for willful and wanton misconduct, and remand for further proceedings in the trial court on the issue whether either party is entitled to judgment on that claim under the principles set out in this opinion.

I. FACTUAL BACKGROUND OF POWER OUTAGES

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 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. 1 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. These two equipment failures resulted in an interruption in the supply of power to Danisco which lasted approximately five 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.

II. PROCEDURAL HISTORY AND CERTIFICATION PROCEEDINGS

A. Procedural History in Trial Court.

In an attempt to recover for economic loss and property damage caused by the interruption of its power supply, Danisco filed suit against KCP & L, claiming damages based on a "lost opportunity" to produce food additives for the periods during which the power outages occurred, and during 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 claimed that these damages were caused by KCP & L's negligence. In Count II of its Petition, Danisco claimed 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.

The parties filed cross-motions for summary judgment. KCP & L argued that it had validly disclaimed liability for damages resulting from its own negligence or willful misconduct in Rules 7.06 and 7.12 of its "General Rules and Regulations Applying To Electric Service." These rules are a

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part of its tariff and the tariff was allowed to become effective by the KCC under the power and authority the Kansas legislature gave the KCC to approve just and reasonable rates.

Rule 7.06 determines KCP & L's duty to supply continuous electrical energy to customers. It purports to absolve KCP & L from liability for any failure to continuously supply electrical energy, even if that failure resulted from its own negligence, for it states:

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. Similarly to Rule 7.06, it purports to protect KCP & L from liability for any failure to perform its obligations to deliver electric service, stating:

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.

KCP & L argued that these rules were dispositive, that the courts had no right to second guess the KCC's determination to allow these rules to become part of its tariff, and that it was entitled to judgment on all of Danisco's claims.

Danisco cross-filed for summary judgment, countering that, even though the KCC allowed these rules to become effective as a part of KCP & L's tariffs, the courts had the right and responsibility to determine the reasonableness of these limitations on liability, and that, under prior Kansas law and prior Missouri cases interpreting Kansas law, these limitations are unreasonable and cannot be given the force and effect of law because any such purported limitation of liability for KCP & L's own negligence and willful and wanton misconduct was void as against Kansas public policy.

The trial court granted summary judgment to Danisco on its claims against KCP & L, holding that the disclaimers are void as against Kansas public policy. In support, it cited this Court's decision in Forte Hotels, Inc. v. Kansas City Power & Light Co., 913 S.W.2d 803 (Mo.App.1995), in which this Court held these rules unreasonable in reliance on two Kansas Supreme Court cases, Shawnee Milling Co. v. Postal Telegraph Cable Co., 101 Kan. 307, 166 P. 493 (1917), and McNally Pittsburg Mfg. Corp. v. Western Union Tel. Co., 186 Kan. 709, 353 P.2d 199, 204 (1960). KCP & L appealed.

B. Appeal and Certification of Questions to Kansas Supreme Court.

On appeal to this Court, KCP & L argued that it did not have an opportunity in Forte Hotels to brief the issue whether courts can determine the reasonableness of KCP & L's tariffs' liability limitations, and, if so, whether its tariffs' limitations on liability are reasonable, and that Forte Hotels addressed these issues sua sponte. KCP & L also noted that the unique and significant public policy considerations raised in imposing liability for power interruptions were not considered or discussed in either Forte Hotels or the telegraph cases which were cited as authority for its holding.

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KCP & L further argued that Forte Hotels was wrong insofar as it ignored the Kansas legislature's delegation of its legislative power to and its creation of the KCC, and cited to a number of Kansas statutes as evidence of the KCC's authority. These statutes indicate that the KCC is to be given full power, authority and jurisdiction to do all things necessary and convenient for the exercise of its power. KCP & L suggested this is a sweeping indication of the legislature's intent that the KCC has all of the legislature's legal power and authority that might be required to supervise and control electric public utilities doing business in Kansas. K.S.A. 66-101. KCP & L further argued that the legislature plainly provided that any rule adopted by a utility...

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