In a recent case before the United States District Court for the Southern District of Florida, the court upheld a limitation of liability provision and ruled that it also protected the telephone company.

The action was brought by the insurance company as the subrogee of its insured. The insured purchased an alarm system for its merchandise warehouse. Included in the alarm package was a monitoring service. If an unauthorized entry was detected, it was supposed to notify the third party defendant, which would then call the police. To prevent burglars from cutting the line and circumventing the service, the system included a WatchAlert service which sent a signal every 26 seconds over the telephone line to the phone company. If the phone company missed a signal, it would presume the line had been cut and notify the monitoring company, who would treat it as a positive alert and dispatch the police.

The contract between the alarm company and the insured contained a limitation of liability provision. The insured’s warehouse was burglarized and the insurance company compensated its insured for its losses under a general liability policy.

The insurance company filed an action in the United States District Court for the Southern District of Florida for the losses it paid to its insured alleging that the phone company’s negligent operation of the WatchAlert system allowed the burglars to enter undetected. After the insurance company presented its case to a jury, the District Court granted judgment as a matter of law in favor of the phone company. The court found that a limitation of liability clause in the contract between the insured and the alarm company applied to the phone company and capped its liability at $250.00. The phone company then stipulated to a final judgment in the amount of $250.00.

On appeal the insurance company argued that the limitation of liability clause did not apply to the phone company and that on remand, judgment must be entered against the phone company because it admitted liability. The United States Court of Appeals concluded that the plain language of the limitation of liability clause applied to the phone company and thus they did not have to address the effect of the phone company’s admission of liability.

The Court of Appeals held that the District Court determined, as a matter of law, that the language of the contract was unambiguous and applied to the phone company’s services. Therefore, the District Court correctly held that the limitation of liability clause applies to the phone company and the judgment was affirmed.