A port authority contracts with a crane company to assist with loading containers. A crane defect causes a container to fall and injure a passerby. The port authority settles with the passerby and seeks to recover the settlement from the crane company for breach of contract. What is the crane company's best defense?

• A. The settlement was not reasonably foreseeable at the time the contract was formed.
• B. The crane company is automatically liable for any third-party settlements.
• C. The port authority assumed the risk of settlement.
• D. The contract limited damages for such settlements.

Answer: (C)

In contract law, when the parties allocate risk of certain losses in the agreement, that allocation can bar a later claim for those losses. If the crane company and the port authority included an indemnity or hold-harmless clause, or some provision where the port authority assumes the risk for third-party claims arising from performance, then the crane company can argue that it is not liable for the settlement paid to the passerby. The essence is that the contract shifts responsibility for third-party settlements away from the crane to the port authority, so the crane’s breach would not give rise to liability for that settlement amount.

Foreseeability about damages doesn’t override an express risk-allocation clause, and a contract’s general limitation of damages would only help if such a clause actually covers third-party settlements—without an explicit risk assumption, those restrictions don’t automatically apply. The best defense here is the contract’s risk allocation: the port authority assumed the risk of such settlements.