On April 24, 2025, the California Supreme Court ruled unanimously that a contract provision restricting liability for willful injury was unenforceable under California Civil Code section 1668. This decision was in response to a certified question from the Ninth Circuit.

The underlying case, which was file in 2021, involved a barbecue sauce dispute. New England Country Foods (“NECF”) filed against its manufacturer, VanLaw, and sought $6 million in damages. NECF alleged that VanLaw copied the barbecue sauce at the end of the three-year manufacturing contract and tried to sell the sauce to Trade Joe’s and bypass NECF.

The manufacturing contract had a “Limitation on Liability” clause which provided:  “To the extent allowed by applicable law:  (a) in no event will either party be liable for any loss of profits, loss of business, interruption of business, or for any indirect, special, incidental or consequential damages of any kind, even if such party has been advised of the possibility of such damages; and (b) each party’s entire liability to the other party for damages concerning performance or nonperformance by such party in any way related to the subject matter of this Agreement, and regardless of the form of any claim or action, will not exceed the amount of gross revenues earned by [VanLaw] or NECF from the Products, whichever is greater, for the twenty-four (24) months prior to the events giving rise to the alleged liability.” 

The contract also had an indemnification provision which provided that “in no event shall either party be liable for any punitive, special, incidental or consequential damages of any kind (including but not limited to loss of profits, business revenues, business interruption and the like), arising from or relating to the relationship between [VanLaw] and NECF, regardless of whether the claim under which such damages are sought is based upon breach of warranty, breach of contract, negligence, tort, strict liability, statute, regulation or any other legal theory or law, even if either party has been advised by the other of the possibility of such damages.”

Civil Code section 1668 provides: “[a]ll contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”

The complaint was filed in federal court, and the Ninth Circuit asked the California Supreme Court to answer this question: “Is a contractual clause that substantially limits damages for an intentional wrong but does not entirely exempt a party from liability for all possible damages valid under California Civil Code Section 1668?” The three causes of action were for independently tortious conduct:  intentional interference with contractual relations, intentional interference with prospective economic relations, and breach of fiduciary duty. 

The Court held that a limitation on damages for willful injury to the person or property of another is invalid under section 1668. However, the Court held that section 1668 “does not preclude parties from limiting their liability for pure breaches of contract absent a violation of an independent duty that falls within the ambit of section 1668.”  Where the claims asserted are “nothing more than a breach of . . . contractual obligations,” section 1668 does not apply. 

Given the prevalence of limitation of liability and indemnification clauses in food and beverage manufacturing, the Court’s decision is particularly important to this industry.