In September 2008, the Superior Court of the State of Delaware rendered its decision in a case involving the destruction of a condominium complex that was destroyed by a fire. In their complaint, the condominium owners and their insurance company attempted to impose liability on the fire alarm company who installed and monitored the system based on breach of contract, negligence, fraud and strict liability.

The fire alarm company filed a motion for summary judgment asserting that the limitation of liability/liquidated damage clause and the waiver of claims/subrogation clause in the parties’ contract barred the plaintiffs’ claims. The plaintiffs argued the contract provisions should not be given effect because the clauses were unconscionable, not conspicuous and at most represented a contract of adhesion.

At the time the fire broke out and spread through the condominium complex, an alarm system was in place. The system was designed, installed and monitored pursuant to a contract entered into by the condominium association and the defendant fire alarm company. The plaintiff condominium association and its insurance company filed the complaint against the fire alarm company alleging that the company improperly designed, installed, modified and monitored the fire alarm system and these failures supported findings of breach of contract and negligence.

The plaintiffs further alleged that the alarm company engaged in consumer fraud in that it misrepresented, concealed, suppressed and/or omitted relevant material facts with regard to how the fire alarm system would be installed and monitored. In addition, the plaintiffs further contended that the alarm company was strictly liable for the damages arising out of the fire because the fire resulted from the alarm company’s lease of defective equipment to the plaintiffs.

The contract between the condominium association and the defendant alarm company was a two-page contract. The first page contained a disclaimer of warranty provisions and specifically referenced the paragraph on the back page of the contract that set forth the alarm company’s obligation and maximum liability in the event of any loss or damage to the plaintiff.

The reverse side of the agreement stated that the defendant was not an insurer and set forth the liquidated damage and limitation of liability provisions, which limited the liability of the company. In addition, the provision on the reverse side of the contract included a provision regarding subrogation, whereby it set forth that the subscriber does hereby for himself and any parties claiming under him release and discharge the alarm company from and against all hazards covered by subscriber’s insurance, it being expressly understood and agreed that no insurance company or insurer will have any right of subrogation against the alarm company.

The alarm company filed its motion for summary judgment on the grounds that the limitation of liability/liquidated damage clause and the waiver of claims/subrogation clause barred plaintiffs’ claims.

The plaintiffs in turn argued that the contract provision should not be given effect because the clauses cited were “unconscionable, not conspicuous, and at most represent a contract adhesion.”

The court, in its opinion, indicated that in cases such as these involving commercial parties, it has been held that there is no difference between a liquidated damage clause, or exculpatory clause, and a liability limitation clause. The court pointed out that the contract was not lengthy and the language concerning the limitation of liability was clear. Further, the court pointed out that the contract language emphasized the company’s limited liability on the front side of the contract and the paragraph cross-referenced the paragraph on the reverse side which was more specific regarding the limitation of liability. The court further pointed out that the paragraph on the front side is located just above the signature line of the contract.

The court ruled that plaintiffs’ attempt to hold defendant responsible for the loss arising from the fire was unreasonable based upon the language of the contract. The contract limiting the defendant’s liability was not unreasonable in view of the service the defendant was rendering, which was risk reduction as to life and property, not risk elimination. The contract recognized that although sometimes things do go wrong, the defendant was not an insurer. Therefore the court held that the contract was not unconscionable.

As to the waiver of subrogation clause, the court found that it also was enforceable as, like the limitation of liability/liquidated damage clause, the waiver of the claimed subrogation clause at issue was not unconscionable as a matter of law.

The last item was plaintiffs’ assertion that the contract between the parties was an adhesion contract, defined by Blacks Law Dictionary as “a standard form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who adheres to the contract with little choice about the terms.”

The court pointed out that a contract of adhesion is different from a negotiated contract. The plaintiffs’ position was that they were an organization comprised of homeowners and because they were put in a “take it or leave it” position, the contract was unconscionable.

The court found plaintiffs’ argument without merit stating that the contract between the parties differs from an insurance contract where the courts have strongly construed the contract against the drafter and in favor of the insured. Here, as set forth, the court found the contract language clear and unambiguous. Therefore, the court found no basis for treating the contract as an unconscionable contract of adhesion.

The court therefore granted the defendant alarm company’s motion for summary judgment with the exception of a prohibited practice claim, which was not discussed in this article.

The issues raised by the plaintiffs in defense of the motion for summary judgment are often raised in litigation involving alarm contracts. The alarm company dealer is advised to understand these issues when negotiating the original contract so that the ultimate subscriber understands the reasoning for the liquidated damage, limitation of liability and third party indemnification provisions.

As the court pointed out, the alarm company is not an insurer and the service provided by the alarm company is “risk reduction as to life and property, not risk elimination.”