Allocating Loss to Insurance Carriers
A recent case decided by the United States District Court for the Eastern District of Tennessee discussed many of the issues important to an alarm dealer including insurance.
The plaintiff in this action contracted with the alarm company to install a security system at its convenience store. Under the alarm contract, the alarm company agreed to provide cameras, alarm detectors and other security equipment. The contract contained an exculpatory clause under which the plaintiff agreed to allocate any risk of property damage or loss to his insurance company. Approximately two years after the security system was installed, plaintiff’s store was burglarized. The plaintiff filed a lawsuit against the alarm company in state court in Tennessee. The case was subsequently removed to a federal court. The complaint included claims for intentional misrepresentation, fraudulent concealment, fraudulent inducement, negligent misrepresentation, negligence, breach of contract and violating the Tennessee Consumer Protection Act. The defendant alarm company filed a motion for summary judgment.
The customer acknowledged that the alarm company representative explained the full range of protection available to the customer, and that the customer desired and contracted for only the equipment and services itemized in the agreement.
The contract contained an exculpatory clause that, among other things, stated that it is understood that the alarm company was not an insurer, that insurance, if any, should be obtained by the customer and that the amounts payable were based solely upon the value of the services and the scope of liability was unrelated to the value of the customer’s property or property of others located in the customer premises. The contract further stated, among other things, that the customer agreed to look exclusively to customer’s insurer to recover for injuries or damages in the event of any loss or injury and releases all right of recovery against the alarm company rising by way of subrogation.
The plaintiff admitted to not reading the contract and further acknowledged that the representative of the alarm company explained the general terms.
The court pointed out that when plaintiff signed the contracts, he agreed to allocate any risk of property damage or loss to his insurance company. Based upon the clear language of the contracts, plaintiff agreed to exculpate the alarm company for any property damage or loss regardless of the theory of liability. As a general rule, Tennessee courts recognize that “exculpatory clauses are valid in Tennessee and are not against the public policy of the state.”
The rationale of the court is important as it stated, “the essential rationale of cases upholding the validity of such exculpatory clauses is that a property owner generally will maintain insurance coverage on its property, especially if it is valuable...” Thus, the practical effect of an exculpatory clause in a contract for the sale of an alarm system is to foreclose an insurance company that has paid the owner for the loss from maintaining a subrogation action against the seller of the alarm system.
The court then pointed out that the plaintiff had not alleged any fraud or intentional misrepresentation that might provide the court the justification for voiding the contract or any portion thereof. The court then went on to cite various Tennessee cases which held that when a person signs a contract in Tennessee, that person is presumed to have read its contents. When the plaintiff chose not to read the contracts, he did not exercise ordinary diligence. With reference to the claim for breach of contract and negligence, the court determined that they were barred by the exculpatory clause. Therefore, the motion for summary judgment as to all counts was granted and the plaintiff’s claims were all dismissed.
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