Breach of contract - remedy to injured party.
You are an associate in the law firm of Moose and Squirrel LLC. One of the firm's clients, Natasha Transport ("Natasha"), recently sent the firm an audit letter. The letter asks the firm to provide information to Natasha's auditor concerning a possible claim involving a contract between Natasha and Baddenoff Corporation ("Baddenoff."). Captain Peachfuzz, the firm's billing partner for Natasha, negotiated the Baddenoff contract nine months ago. Captain Peachfuzz has asked you to advise him on the audit response.
The contract requires Natasha to transport valuable art to New York City for auction. Natasha's most recent shipment was hit by a train and the art was totally destroyed. Natasha did not insure the shipment as required by the contract. Natasha has not yet reported the accident to Baddenoff, so Baddenoff is unaware of the possible breach.
The exact value of the art is uncertain. Captain Peachfuzz believes the loss to Baddenoff could be from $1.1 million to $3.4 million, or even more. However, the contract provides for liquidated damages of $850,000 per shipment in the event of an uninsured loss. If Baddenoff brings a claim, the law of the State of Vida will apply. Vida courts almost always enforce liquidated damages clauses, especially when the injured party's actual damages exceed the specified liquidated damages.
Captain Peachfuzz thinks there is a possible interpretation of the contract that would only require insurance against theft, not accident. If this interpretation is accepted, Natasha would not be in breach and would not be liable. When you asked Captain Peachfuzz about the claim, he said, "The other side has a good case. Our argument is a plausible interpretation of the contract, but we're not likely to win on that argument." Captain Peachfuzz is pretty sure Natasha will sue when it finds out about the accident.
Discuss what information Captain Peachfuzz may provide to the auditor about Baddenoff possible claim against Natasha. (Assume that the amount involved is material to Natasha.)