An interesting case was recently decided by the court of appeals in Tennessee raising the question whether the company has a duty to perform when the subscriber failed to pay the monthly monitoring fee. The action was filed against the fire alarm company that provided emergency monitoring services for the owner’s home. Plaintiff, the owner of the home, was injured when the home caught fire. Plaintiff sued the alarm company on several theories of negligence. Approximately five months before the fire, plaintiff contracted with the defendant to install a smoke detector and provide monitoring services. The contract between the parties contained a limitation of liability/liquidated damage clause. The trial court granted defendant alarm company’s the motion for summary judgment stating that (1) the alarm company did not owe a duty because the plaintiff had failed to pay monthly monitoring fees due under the contract; (2) the exculpatory and limitation of liability clauses in the contract were valid; and (3) the alarm company established that it was not negligent. Plaintiff failed to present evidence creating a genuine issue of material fact for trial.

The appellate court reversed the decision of the lower court finding that the alarm company did owe a duty to the plaintiff, despite the failure to pay fees. However, the appellate court found that the limitation of liability clause at issue in the contract was valid and limited the plaintiff’s recovery to $250.

The court pointed out that under the provisions of the agreement, the alarm company could have terminated its contract with the plaintiff because she did not pay the monthly monitoring fee. If the alarm company had terminated the agreement, it would not owe a duty to the plaintiff on that basis. However, there is no evidence in the record to indicate, nor does the alarm company claim that it exercised its right to terminate the agreement. The court further pointed out that the plaintiff signed a contract acknowledging that the alarm company was not an insurer of the property and that in the event the alarm company was liable for any loss relating to the provision of alarm services under the terms of the contract, then the alarm company’s liability would be limited to $250. Plaintiff, had the opportunity to pay an additional fee for the alarm company to assume a greater liability than the limit established by the contract; however, she opted not to incur the additional expense. Therefore, the alarm company was bound by the terms of the agreement and owed the plaintiff a duty. However, the damage was limited to $250.

The lesson to be learned: If the customer does not pay, notify the customer that the service is terminated.