An action in the United States District Court for the District of Massachusetts against an alarm company arose out of a fire that caused extensive damage to a property. The insurance company made payment to its insured in excess of $400,000 for the damages sustained from the fire according to the terms of the policy. Then, more than one year after the fire occurred, the insurance company brought an action against the alarm company for negligence, breach of contract and breach of warranty, seeking to recover the payments made to its insured.

The defendant alarm company moved for summary judgment arguing that the waiver of subrogation and a one-year contractual limitation period provision in the alarm system maintenance contract prevented the insurance company from bringing the suit.

A maintenance contract represented the only written understanding between the insured and the alarm company at the time of the fire. Apparently the maintenance contract was destroyed in the fire and the alarm company was only able to locate a signature page. The alarm company was unable to locate the balance of the contract, but its representative testified in a deposition that he probably mailed a multi-page contract to the plaintiff’s insured. In addition, the form number of the contract was printed on the contract and there was testimony that the maintenance contract was based on a standardized form. The representative of the alarm company further testified that the residential services contract was a standard form with a perforated top that held the signature and terms and conditions pages together. The terms and conditions of the form included a waiver of subrogation and a provision limiting the period for filing a lawsuit to one year from the date the underlying event occurred.

The court said that two issues had to be determined: 1) whether the alarm company’s secondary evidence sufficiently established the terms of the maintenance contract; and 2) whether the maintenance contract terms prevented the plaintiff insurance company from pursuing the present litigation.

With reference to the first issue, the court pointed out that although the alarm company was only able to produce the executed signature page of the maintenance agreement, through discovery it had provided secondary evidence indicating that waiver of subrogation and contractual limitations period provisions were included in the terms of the maintenance contract. The representative of the alarm company testified that the plaintiff’s insured requested maintenance for his alarm system and that it was the representative’s custom, habit and practice to send customers requesting maintenance a residential services contract.

The court therefore determined that the record supported a determination as a matter of law, that the second page was received, and that the standard form waiver of subrogation and contractual limitations period provisions would be incorporated into the maintenance contract. The second page of the residential service contract clearly indicated in bold, capitalized font above the signature line that there was an additional “attachment, which contains important terms and conditions for this contract.” By signing the agreement, the insured admitted to having “read this page” and understanding “all the terms and conditions of this contract.”

The court then pointed out that by entering into the maintenance contract, the plaintiff’s insured agreed to file “any lawsuit or other action against the alarm company within one year of the fire.” In addition, the insured agreed to “waive all subrogation and other rights of recovery against the alarm company.”

Therefore the court found, among other things, that the plaintiff insurance was subject to the provisions of the contract that limit the insured’s recovery period. Therefore the defendant’s motion for summary judgment was granted.

  Readers Ask

Q    A very good customer has had a series of false alarms and is now insisting that our company reimburse him for the false alarms that he has paid to the city. Do I have to reimburse the customer?

A    What does the contract say? If the contract says that the subscriber is responsible for payment of false alarm fees, then it is the subscriber’s responsibility and not yours. On the other hand, if the false alarms are caused by an equipment malfunction and not by any action on the subscriber’s part, then you may want to work out something with the subscriber to maintain good will. If the contract is silent about the payment of false alarm fees, it is probably the subscriber’s responsibility, although you may wish to update your contract.