In a recent case in Minnesota, the United States District Court for the District of Minnesota granted a motion for summary judgment in favor of an alarm company and effectively upheld a limitation of liability provision in an alarm contract.

How did the alarm company end up in court? The furnace at the plaintiff’s residence failed due to low temperature, causing a pipe to burst and resulting in significant property damage. The alarm company apparently did not respond. The plaintiff indicated that her business manager informed the alarm company that the phone number on the agreement was not operational and provided a new call list and corresponding phone numbers. The alarm company disputed that plaintiff or her representative provided the information. After paying its insured for the loss, the plaintiff’s insurance carrier filed this action for subrogation, alleging that the alarm company’s action constituted willful and wanton negligence, which made it exempt from the agreement’s exculpatory clause.

In discussing the case, the court found that the defendant alarm company had an agreement with a residential customer that, among other things, provided that the customer agreed that the alarm company was not responsible for personal injury or other losses alleged to be caused by improper operation or non-operation of the system and/or service, including cases where the system and/or service never functioned, whether due to defects in the system and/or service or the alarm company’s acts or omissions in receiving and responding to alarm signals.

The contract further provided that the alarm company was not an insurer and that the customer did hereby for himself/herself and other parties claiming under him/her, release and discharge the alarm company from and against all claims arising from hazards covered by customer’s insurance. No insurance company or insurer would have any right of subrogation against the alarm company. Further, the contract contained a limitation of liability provision.

The court pointed out that although the state of Minnesota recognizes the public interest in freedom of contract and upholds exculpatory provisions in certain provisions in certain circumstances, such a clause cannot operate to limit liability for intentional, willful or wanton acts. The court then pointed out that whether a defendant’s failure to act with reasonable care constitutes negligence or intentional, willful or wanton negligence, can raise a question of fact for a jury to decide. When the facts fail to leave room for ordinary minds to differ, however, the court is justified in characterizing the conduct.

The court held that the alarm company’s conduct was insufficient to constitute gross negligence as a matter of law. The claim that the alarm company failed to change the contact number on the agreement did not establish a basis for a claim for willful and wanton negligence because neither the plaintiff nor her property were in peril before the low temperature alarm sounded. The alarm company’s conduct was at worst, negligence. Therefore, the court indicated that the recovery was limited to the specified amount in the agreement in cases where the alarm company was negligent.

The court held that the plaintiff’s case failed and its insurer’s subrogation claim also failed. Therefore, the alarm company’s motion for summary judgment was granted.

Readers Ask

Q:

We are an alarm company and our bid to wire a shopping center for alarm services has been accepted. The owner of the shopping center has signed the contract and as part of the agreement, we are required to install, service and monitor the system for the various retail establishments in the shopping center. Can we proceed without a separate contract from each of the retail establishments in the shopping center?

A:

If in your contract with the owner of the shopping center, there is a third party indemnification provision whereby the owner indemnifies you, the alarm company, in the event a claim is made against you by any third party, including the retail establishments, then you are reasonably protected. If there is a loss and any third party, including any of the retail establishments, files a claim against you the alarm company, then the owner of the shopping center would be required to indemnify you against any claim or loss.

Although, you would be reasonably protected if your contract has included a valid third party indemnification provision, it certainly would be preferable to have a separate agreement with each of the retail establishments.

The shortfall in relying solely on the indemnification of the owner of the shopping center is that the owner may not have the financial wherewithal to satisfy any claims filed against you or may not be properly insured, in which event the indemnification provided may not be sufficient to protect you.