Factual Background Edit
Plaintiff, Metropolitan Life Insurance, and defendant, software developer Noble Lowndes International, entered into a contract for the licensing of a computer program known as the Automated Claims Entry System (ACES). The agreement provided for the base system software, the preparation of functional specifications, and included a ceiling price for customized enhancements. The agreement also contained a broad limitation of liability clause which stated that the defendant was absolved from liability for consequential damages caused by its performance or nonperformance, except for the intentional misrepresentation or damages arising out of the software developer's willful acts or gross negligence.
After the defendant had furnished the base system and functional specifications without dispute, the defendant offered two sets of enhancements which were rejected by the plaintiff. According to the plaintiff's proof, the defendant then demanded an upward adjustment of the contract ceiling for the enhancements. The plaintiff refused and the defendant discontinued performance, which led to this litigation. The plaintiff sued for the refund of the sums it paid defendant plus general and consequential damages.
Trial Court Proceedings Edit
After a lengthy trial, the jury was instructed that because of the limitation of liability clause, plaintiff could not recover consequential damages unless the jury found that defendant's conduct constituted a willful act. In defining a willful act for the jury, the court excluded merely deliberate or intentional nonperformance. Rather, the court instructed the jury that defendant's commission of a willful act required a finding that its conduct was malicious, i.e., the intentional perpetration of a wrongful act injuring plaintiff without justification. The jury made a special finding that defendant's act were willful and awarded plaintiff $3,961,000 in damages, including $581,000 cover damages, and $2,807,000 in lost savings.
Appellate Division Proceedings Edit
On appeal, the Appellate Division modified the judgment, reducing damages to the $204,000 the plaintiff paid the defendant for its partial performance, plus interest, costs and disbursements. The court interpreted the willful act exception to the limitation of liability clause to mean tortious conduct and found that mere intentional abandonment would be insufficient to invoke the exception.
Court of Appeals Proceedings Edit
Plaintiff appealed arguing that the Appellate Division erred in refusing to attribute the common, ordinary meaning of willful acts as merely deliberate or intentional conduct. The Court of Appeals disagreed and found that the parties intended to narrowly exclude from protection only truly culpable, harmful conduct, not merely intentional nonperformance. The court rejected the plaintiff's proof that the defendant willfully intended to inflict harm on plaintiff through its abandonment of the contract. The court affirmed the Appellate Division's order.