A case arose in Oregon which involved the attempt by the plaintiff insurance company to extend coverage of the alarm company to an entire building where its contract was for a particular suite.

The plaintiff in the case was an insurance company who provided property insurance to its insured. The Insured leased a suite in its building to a tenant. The tenant entered into a contract agreement with the defendant alarm company to provide monitoring services for a burglar alarm inside the suite. Under the terms of the agreement, the alarm company allegedly promised to transmit burglar alarms to the police or fire department. The plaintiff acknowledged that the agreement was intended for burglar alarm services and not for fire.  

Sometime after the agreement was entered into, the tenant decided to replace its telephone system, and as a result, the telephone connection between the burglar alarm system for the suite and the alarm company was severed. An intruder, who was suffering from the delusion that he was being chased by marauding ninjas, broke into the suite. The burglar alarm to the suite was triggered; however, to hasten a response from the police department, the intruder started a fire in the suite. The plaintiff insurance company filed an action alleging that because the telephone line was severed, the defendant alarm company lost the ability to monitor the system notwithstanding the fact that the tenant paid the alarm company a quarterly fee for two years up to the time of the fire.  

The plaintiff insurance company further alleged that the fire that started in the suite spread from the initial area and proceeded to do damage throughout the entire building and filed a claim for “reckless misrepresentation,” claiming that the defendant alarm company promised the tenant that it would communicate the information of a triggered burglar alarm to authorities; that the alarm company failed to notify the tenant that it had lost its ability to monitor the burglar alarm; and that by accepting a fee, its conduct amounted to a reckless disregard of the fact that it could not notify police of unlawful entry into the suite.  

The court determined that the plaintiff insurance company did not set forth the existence of a contract between itself and the defendant alarm company. Nor had the plaintiff alleged the existence of a contract between its insured and the defendant alarm company.  

In its amended complaint, the plaintiff insurance company asserted a second claim for negligent misrepresentation, alleging that its insured, the building owner, was an intended beneficiary of the agreement for burglar alarm services between the tenant and alarm company.  

The court found that the plaintiff did not cite any authority to support its claim for reckless misrepresentation under Oregon law. To allege a claim for misrepresentation, or fraud, a plaintiff must allege and prove:  1. the defendant made a material representation that was false; 2. the defendant did so knowing that the representation was false; 3. the defendant intended the plaintiff to rely on the misrepresentation; 4. the plaintiff justifiably relied on the representation and; 5. the plaintiff was damaged as a result of that reliance. The court pointed out that several of these elements were missing. The plaintiff did not allege that the alarm company intended that the insurance company or its insured relied on any representations or nondisclosures, nor that either justifiably relied on any representations. 

The court further pointed out that the plaintiff insurance company and its insured were not provided representations regarding the burglar alarm, and did not take any action or fail to take any action, because they reasonably relied on any representation regarding the burglar alarm. Therefore, the claim for negligent misrepresentation failed.  

Of great importance is the court’s additional rationale in pointing out that the context of this action indicates that the amended complaint does not state plausible claims for relief. There was no relationship or communication between the defendant alarm company and the plaintiff fire insurer or its insured. The amended complaint in essence sought to obligate the burglar alarm company providing service to a suite to extend fire insurance coverage for the entire building. No burglar alarm company could be in business if the law imposed such obligations. Oregon law does not allow recovery in such a situation and research does not reveal a jurisdiction that does.  

The defendant’s motion to dismiss was granted.



Q: Our company manufactures and distributes DIY alarm systems over the Internet. We sell systems; we do not install, service or monitor them.  Are we required to have a license in order to sell systems in California?


A: In California, the Business & Professions Code Section 7590.2 defines an alarm company operator as a person who, for any consideration whatsoever, engages in business or accepts employment to install, maintain, alter, sell on premises; monitors or services alarm systems; or responds to alarm systems, except for any alarm agent. If a business sells a DIY system and does not monitor, service, alter or install, and does not sell on premise, a license is not required. If the seller enters into a contract to provide any of the above services and then subcontracts the work, the probability is that the DIY seller will require a license. If the purchaser of the DIY system enters into a contract with a subcontractor directly to provide any of those services, the company that sells the DIY system would not be required to hold an alarm license.