In a recent Colorado case, the Court of Appeals of Colorado reversed a ruling of the lower court that had granted summary judgment in favor of the alarm company, holding that the plaintiffs, a company that had leased a warehouse for storing inventory and the insurers who had insured the warehouse and inventory, had provided evidence showing that the defendant, the alarm company contracted to monitor the warehouse, had acted willfully and wantonly and that whether the action was willful and wanton was a question of fact for the jury to determine.  Under Colorado law, the liability for willful and wanton conduct could not be released, whether through an exculpatory clause, which is a part of an agreement that relieves one party from liability, protecting that party from being sued for their wrongdoing or negligence, or a liquidated damage clause, which establishes a predetermined sum that must be paid if a party fails to perform as promised.

When the plaintiff and the defendent alarm company entered into a contract to install and monitor an alarm system to protect the warehouse, the terms of the contract included a  limitation of liability provision.

The plaintiffs and the insurance company sued after burglars entered into the plaintiff’s warehouse while it was closed over the weekend.  The burglars looted the warehouse and when leaving, set the warehouse on fire.  The alarm company’s off-site monitoring center received signals caused by the noise of the burglars. 

Although the employees of the alarm company received two or three separate sets of alarms, in each case the employees failed to notify the police.  Instead, in each case, the operators reset the alarm.  The building was destroyed along with all of the inventory, resulting in a loss of approximately $20,000,000. 

The plaintiffs and the insurance company sued the defendant alarm company for negligence, breach of contract and gross negligence. The court granted the alarm company’s subsequent motion for summary judgment on the theory that the limitation of damage clause in the contract was enforceable.

On the plaintiffs' appeal, the court pointed out that in Colorado, exculpatory clauses insulating a party from its own negligence are permitted if one party is not at a significant disadvantage in bargaining.  It pointed out, however, that an exculpatory clause is against public policy if it enforces a release from willful and wanton misconduct.  In the present case they had to consider whether this public policy exception for willful and wanton conduct, which applies to an exculpatory clause, also applies to a limitation of liability provision, as the issue had not previously been addressed in Colorado.

The court pointed out that although the district court properly found that the limitation of liability clause shielded the alarm company from claims for simple negligence, because the plaintiffs properly raised the issue of willful and wanton conduct supported by evidence, the district court should not have granted summary judgment before determining the issue of willful and wanton misconduct. 

The court concluded that whether the alarm company’s conduct was willful and wanton is a question of fact for the jury to determine.  Therefore, the district court was premature in granting summary judgment as to the applicability of the limitation of liability clause.