Hold Harmless Provision is Not Against Public Policy

An insurance company filed a lawsuit against the security company that installed and monitored a sprinkler alarm on premises owned by the cross-defendant after a fire occurred on the insurance company’s premises. The security company named its subscriber, the insurance company, as an apportionment defendant (or a party against whom a claim is brought where an allocation of responsibility is made against that party) and filed a cross-complaint (or an action filed by the party being sued) against the subscriber based on the contract between the parties. The fire occurred on the insurance company’s premises, which activated the sprinkler system and electronically sent an alarm signal to a site monitored by the security company. The security company allegedly received the alarm, but failed to call the town fire department. The sprinklers discharged water for several hours, resulting in extensive property damage.

The contract between the security company and the subscriber included a hold harmless agreement running in favor of the security company, which required the subscriber cross-defendant, or insurance company, to defend and hold harmless the security company, its agents and employees for and against all claims brought by owners of the insurance company’s property arising out of the security company’s service. A hold harmless agreement is a contractual arrangement whereby one party assumes the liability of a particular situation, relieving the other party of any responsibility.

The subscriber, cross-defendant, raised two special defenses in its answer (1) claiming the contractual hold harmless provision is not valid against public policy according to the statutes of the state of Connecticut and (2) claiming the hold harmless provision in the contract is void as against public policy, because the security company seeks to relieve itself from the consequences of its own negligence. The subscriber cross-defendant moved for summary judgment claiming that the claims raised in its special defense should bar the security company from seeking indemnification from it as a matter of law.

In response to the first defense, the court pointed out that the statute was clearly intended to be limited to construction contracts. The service agreement between the company and its subscriber pertains to the installation and subsequent monitoring of a fire alarm system in a commercial building. The subscriber claimed that the contract relates to the “maintenance” of “appurtenances” (or accessory objects or parts) to a building and that this includes the equipment attached to the building, such as the sprinkler system and the alarm system itself. The security company argued that even assuming a sprinkler system is an appurtenance, the contract does not relate to the installation or maintenance of the sprinkler system itself, but merely to the actual alarm system monitoring the sprinklers.

The court said that there is no Connecticut authority holding that an alarm system is an appurtenance within the meaning of Statute 52-572k, pointing out that it has been held under a New York law similar to Connecticut statute that “contracts for installing and maintaining alarm systems are not contracts affecting real property or for services rendered in connection with construction, maintenance and repair of real property.” The court therefore reasoned that there is a genuine issue of material fact as to whether Statute 52-572k applies to the parties’ indemnity agreement and therefore cannot be a basis for granting the subscriber’s motion for summary judgment. A summary judgement can be granted only if the party’s motion shows no issue of material fact.

With reference to the claim that the hold harmless provision is void as against public policy, the court pointed out that this case is a subrogation action (or assumption of the insurance company’s legal right) to recover property damages and lost business income. It involves monitoring, via phone lines, of a commercial building’s fire alarm system. The security company does not assume the care and control of the commercial premises. The court pointed out that exculpatory agreements (or an agreement to clear the party from any alleged fault or guilt) and/or hold harmless clauses are very common, if not standard, in fire alarm contracts and that the Connecticut legislature has not specifically disallowed hold harmless or exculpatory clauses in contracts for monitoring or maintaining alarm systems and there is no appellate authority that bars them from having such clauses.

Relevant factors to whether an indemnity clause is unenforceable must be determined in light of the factual circumstances of a particular case. Thus, the issue of whether the exculpatory clause in the contract between these parties is unenforceable as a matter of public policy, is not appropriate for summary judgment, because there is an issue of material fact. There are genuine issues of material fact such as the parties’ respective bargaining power, the clarity of the contractual language, the willingness of the company to allow the client to pay for the company’s assumption of greater liability, and how important the company’s operations, in connection with its subscriber’s commercial building are to public safety.

Since a summary judgement is only granted when there is no issue of material fact, the court denied summary judgment on the basis of the second defense.