A recent case in New York again tested the importance of the limitation of liability provision in an alarm contract. In this case, an uninsured jeweler attempted to obtain recovery for over a $5,000,000 loss in jewels stolen by burglars from his retail store on two successive Super Bowl weekends. The plaintiff purchased a security system from the defendant security alarm company. The alarm system contained a two-way radio system manufactured by the defendant manufacturer of the system.  

In 2010, burglars broke into the jewelry store by cutting through the wall from an adjacent retail store. The thieves removed a safe where it had been positioned alongside the wall.  Because the burglars entered the store in this fashion, they did not set off the door alarm. After the break-in, plaintiff moved the two remaining safes to a middle area of the store so that they were not adjacent to any walls. 

Subsequently, the manufacturer notified the alarm company that it would no longer be supporting the Velocita network and that the alarm company and its customers needed to obtain replacement equipment. The alarm company notified the plaintiff and recommended that he replace the system with an upgraded two-way radio system, also manufactured by the defendant manufacturer. The plaintiff declined and as a result the alarm company installed an less effective system manufactured by another company. The store was burglarized again in 2011 when burglars were able to enter the store, disable the alarm system, cut open the safe and remove the jewels inside.  

Having no insurance coverage for the stolen jewels, the plaintiff filed a complaint seeking monetary damages, asserting claims against the alarm company, the manufacturer of the radio system and the safe company. The plaintiff contended that the alarm company misrepresented the alarm system as “state-of-the-art” with full range protection, equipment and services available. The plaintiff contended that the alarm company violated the Consumer Fraud Act (CFA). 

The alarm company and the manufacturer of the radio equipment filed motions for summary judgment, which were granted by the lower court. The plaintiff appealed claiming, among other things that the court erred on its motion for summary judgment in enforcing the limitation of liability provision within the alarm company’s contract and dismissing his CFA claim.

On appeal the court pointed out that the plaintiff’s argument largely on the trial court’s enforcement of a $1,000 limitation of liability clause contained in the alarm company’s contract and the dismissal of plaintiff’s consumer fraud claim against the alarm company.

The court referred to a previous case in its jurisdiction where the holding was that a limitation of liability clause is a reasonable measure within this particular industry to contain an alarm system supplier’s exposure from the losses caused by thefts or other criminal acts. “Such a limitation clause simply allocates responsibility to the buyer of an alarm system to maintain insurance coverage, and the buyer is in the best position to know the value of its property and to insure against any loss.”

In the case at hand, the plaintiff opted not to procure any such insurance. The court pointed out that there is no compelling policy reason to place the responsibility for customer losses due to theft or burglary upon the alarm company simply because its customer failed to take such measures within its control to manage a known risk. 

With respect to the CFA action, the court pointed out that the plaintiff failed to establish a prima facie case for a CFA action against the alarm company because the statements that the system was “state-of-the-art” amounts to “opinion or sales talk,” rather than an actionable “material misrepresentation,” and the plaintiff’s claims regarding the deficiency in the alarm system showed “nothing more than an unmet contractual expectation.”

Therefore, the court upheld the lower court’s decision which granted the defendant’s motion for summary judgment.

We are in the integration business. We install and service systems but do not monitor.  I have a general liability policy; do I also need an errors and omissions insurance policy?

To read the answer, go to SDMmag.com. Click the Columns tab and select Security & the Law.

Normally an errors and omissions policy would be required if you are doing monitoring. If you are installing the system only, you should be covered for installation of a system under your general liability policy. The only question that may arise would be when you are actually servicing a system and what your responsibilities may be.  To be absolutely safe you may want to fully describe the services you provide to your insurance carrier and make sure that your general liability policy covers all the services which you are providing. I would also suggest that you obtain an umbrella policy to make sure you are fully covered for the services you provide.