Limit Your Water-damage Liability
July 1, 2007
In a case decided in March 2007 by the U.S. District Court for the District of Connecticut, the court granted the alarm company’s motion to dismiss a complaint brought by the plaintiff for damages arising from the flooding at the plaintiff’s commercial premises.
The plaintiff operated a furniture store. Plaintiff and defendant entered into a contract whereby the alarm company agreed to monitor the plaintiff’s store for water damage and to notify the plaintiff and local emergency services of any flooding. The contract contained a limitation of liability provision limiting defendant’s liability to a sum equal to the total of one-half of a year’s monitoring payments or $500.00, whichever is less.
The contract further provided that the defendant was not an insurer and that the plaintiff must obtain insurance, if any, covering personal injury and property loss and stated that the payments provided were based solely on the value of the service, etc.
Some time after the contract was executed, a water pipe burst in the store causing water to flood the premises. Defendant failed to notify plaintiff or local emergency services. The store’s inventory was severely damaged. Plaintiff filed a complaint alleging breach of contract and the implied covenant of good faith and fair dealing by failing to provide protection and further alleging that the failure violated the Connecticut Unfair Trade Practices Act (CUPTA).
In granting the alarm company’s motion for summary judgment, the court pointed out that it appears that all of the courts in Connecticut that had considered the validity of liability clauses in contracts for the provision of fire alarm systems have found those clauses to be permissible. The court then quoted a California case involving a burglar alarm contract which summarized the rationale for permitting such limitation of liability provisions as follows: “Most persons, especially operators of business establishments, carry insurance for loss due to various types of crime. Presumptively insurance companies who issue such policies base their premiums on the assessment of the value of the property and the vulnerability of the premises. No reasonable person could expect that the provider of an alarm service would, for a fee unrelated to the value of the property, undertake to provide an identical type coverage should the alarm fail to prevent a crime.”
Pointing to another California case, the court found this rationale equally applicable to fire alarm contracts. The owner of the store was fully able to protect itself from the risk of water damage by purchasing insurance. Therefore the defendant’s motion for partial dismissal of the complaint was granted.