The UPS company doesn't just deliver, or occasionally lose,
your courier parcels — it also runs sophisticated storage
warehouses. Such a warehouse is capable of storing sensitive
vaccines according to strict Health Canada standards of good
An employee suppressed the temperature alarm on one
refrigeration system, which is the opposite of good manufacturing
processes. When a component of the refrigeration broke over a
weekend, the alarm did not sound and the refrigeration temperature
dropped to -4 C, destroying the vaccines. Sanofi Pasteur, the
vaccine owner, had insurance, and its insurance company tried to
recover more than $8 million in damages from UPS, its insurer, and
other refrigeration companies that either made or serviced the
cooling unit (Sanofi Pasteur Ltd. v. UPS SCS, Inc.). While
this is a pharmaceutical contract case, it applies to all kinds of
contracts for consumer products.
There was a master services agreement governing the ongoing
relationship between UPS and Sanofi Pasteur. It had an insurance
clause requiring UPS to have general insurance. It also required
Sanofi Pasteur to obtain insurance for the value of stored goods.
An individual project agreement, called a service schedule covered
each storage deal. Another clause limited UPS' liability for
negligence to $100,000. Excerpts of these are provided below this
article. The project agreement was paramount in case of
UPS admitted only that it owed $100,000 because its employee
disabled the alarm. The appeal court concluded that the agreement
stated that the appellant, Sanofi Pasteur, assumed all risk of
damages to the vaccines, except for up to $100,000 caused solely
due to UPS' negligent acts or insurance. The insurance clause
barred the claim for more money. As a result, the Ontario Court of
Appeal enforced the cap on liability contract clause, and put the
damages claim on ice. Even the refrigeration companies that were
not party to the contract got the benefit of the cap on
The take-away message is that courts will allow parties to
allocate risk and liability between themselves. In this case,
insurance clauses and caps on liability were used. Indemnities are
another typical clause used to allocate risk of loss between
parties. Multiple clauses about insurance can cause confusion, so
it is best to be clear about the parties' intentions so that
there is no disagreement later on. Implementing a master agreement,
followed by a series of specific schedules for each project is a
great way to efficiently customize specific terms for each new
deal. Ensure that the master agreement and schedules are
As well, this story would have been a lot unhappier for the
pharma company had it not properly insured its vaccines. Use
contracts and insurance together to protect your pharma products,
or any products, all along the supply chain.
Excerpt of clauses from court decision:
 The Insurance Covenant – s. 10.2(c) of the MSA
– required the appellant to maintain "all-risk
property... insurance for the Goods and the personal property of
[the appellant] ... in an amount not less than the full replacement
cost thereof, whether such Goods or property are in [UPS's]
facilities or in transit and shall include [UPS] as an additional
 Another provision of the MSA – s. 10.1 –
required UPS to maintain commercial general liability insurance,
"including ... warehouseman's liability and contractual
liability covering [UPS's] obligations hereunder for bodily
injury and property damage."
 Clause 188.8.131.52 of Service Schedule 1 provided that UPS
would be liable for damaged vaccines "solely due to its
negligent acts or omissions with up to a maximum of one hundred
thousand dollars ($100,000)
Previously published by Canadian Lawyer InHouse Magazine
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