A recent decision in New Jersey dealt with a liquidated damage clause and a limitation of liability provision in the subscriber contract. The plaintiff was the owner of a retail store and purchased an alarm system from the defendant alarm company.  The agreement said that if a burglar or fire alarm signal registered at the alarm company’s monitoring station, the company, at its discretion, would contact the customer’s premises to verify that the alarm is not false. If it could not reach the customer, the alarm company agreed to notify the appropriate police or fire department.  

In addition to the paragraphs limiting liability and the exculpatory clause, the contract stated the provisions shall apply no matter how the loss, damage or injury occurs, even if due to alarm company’s performance or nonperformance of its obligations under the contract or from negligence, strict liability, violation of any applicable consumer protection law or any other alleged fault on the part of the alarm company, its agents or employees.  

Burglars broke into plaintiff’s store by cutting through the wall of the adjoining business and disarming the store’s alarm system. When the burglars entered the store, the alarm system was triggered. The alarm company sent the plaintiff an email notifying that a silent panic alarm had been triggered. The plaintiff said he did not see the notification email until the burglary was over because it went directly into his “spam” folder. 

The plaintiff filed a lawsuit alleging that the alarm company breached its contractual obligation by failing to call the plaintiff and the police. During the course of the trial it was undisputed that the alarm company never informed the plaintiff that, in addition to the power loss signal, there was also an alarm signal indicating an entry into the store. The plaintiff acknowledged that he did not have insurance, and testified that this was because of the cost and exclusions. 

The court ruled that the plaintiff stated a plausible claim for breach of contract that was not subject to the contract's exculpatory provision because the plaintiff alleged the alarm company breached its contractual obligation to call the principal of plaintiff’s company and the police if an alarm was triggered. The plaintiff was not seeking coverage from the alarm company for the store’s losses. The judge found it was premature to address the defendant’s argument that the plaintiff’s damages should be limited to $1,000 under the limitation of liability provision.  

On appeal the court pointed out that the courts can only discern two categories of damages that plaintiff may seek to recover in connection with its breach of contract claim: losses arising from the burglary i.e., the stolen goods and property damage; and compensatory damages for the cost of the alarm company’s services, including lost premiums. The court indicated that the first category of those damages clearly falls within the exculpatory provisions, which provide that alarm companies have no liability for loss, damage or injury due directly or indirectly to events or the consequences therefrom, which the systems or services are intended to detect or avert.  

The limitation of liability provision covers the second category of potential damages in this case. The court pointed out that although exculpatory clauses have historically been subjected to close judicial scrutiny, New Jersey courts “enforce contracts that contain exculpatory clauses unless such provision proves adverse to the public interest.”    

The court pointed out that, significantly, New Jersey law does not restrict the ability of alarm service providers to limit their liability through risk allocation provisions, and thus, New Jersey courts have routinely upheld exculpatory provisions in contracts for alarm services, including provisions similar to the ones contained in the current contract. 

The court added because the exculpatory provision is enforceable, the plaintiff cannot recover any damages or losses from the burglary of the store on its breach of contract claim. The limitation of liability provision is enforceable and recoverable damages on this breach of contract claim are limited to $1,000.

READERS ASK 

Q: We are a small alarm company and one of our subscribers has indicated he does not want us to install an operating camera at his premises, but would like us to install a dummy camera so an intruder would think the premises are protected with CCTV cameras. Is this something we should get involved in? 

A:  I recognize that many premises do have fake cameras; however, there is a down side. If a legitimate party enters the premises and sees the camera, there may be an expectation that the cameras are real and that if an intruder enters the premise they will be photographed. If an intruder enters and an unlawful act does take place resulting in loss of property or bodily injury to an innocent third party, the legitimate third party could conceivably maintain an action against the owner of the premises and the alarm company on the basis that there was an expectation of protection when in fact, if there was an actual working camera, the intruder might have been scared away or at least identified. 

In addition, if in fact there is an actual intrusion and the subscriber suffers a loss, the subscriber may well proceed against your alarm company on the theory that you either recommended the dummy camera or you should have warned the subscriber of the consequences of installing a dummy camera. Bottom line, I would avoid installing a dummy camera.