A city in Wyoming refused to issue a certificate of occupancy to a hotel because the owner failed to install a fire alarm system. The plaintiff, the contractor, submitted renovation building plans to the city stating that a fire sprinkler system would be installed consistent with NFPA Standard 13. The plans stated that no new fire alarm system would be installed in the business area; however, the plans did not say whether a fire alarm system would be installed in the new guestrooms to be constructed. The city granted the plaintiff a building permit for the renovations, along with a “plan review report” advising that “fire sprinkler system plans shall be submitted for review prior to installation” and “smoke alarms shall be installed per IBC Section 907.2.10.” The report said the issuance of a permit wouldn't prevent the city from requiring the correction of errors or from preventing building operations being carried on when in violation of any ordinance, rule or regulation.

The plaintiff submitted fire sprinkler system plans to the city, which the city approved. In the same month, a city inspector performed a “rough-in inspection” and raised the need to install a fire alarm system. A dispute arose between the plaintiff’s representative and the city inspector as to whether or not the plaintiff’s representative was advised to install a fire alarm system.

Upon completion of the renovations, the plaintiff requested a final inspection. The inspector refused until the plaintiff installed an operational fire alarm system. The inspector said that while the business section of the addition did not need a fire alarm system, the new guestrooms did because they do not open directly onto a public way, exit court or yard. The city ordered the plaintiff to either install a fire alarm system within 30 days or “cease renting of all rooms.”  

The plaintiff filed a complaint in the U.S. District Court for the District of Wyoming alleging due process violations and requested a temporary restraining order and a preliminary injunction ordering the city to issue a certificate of occupancy. The District Court ordered the city to perform an inspection of the fire alarm and fire suppression system and to issue a certificate of occupancy if the systems were “in compliance with the intent and purpose of the applicable codes.” The city retained an inspector with the Wyoming State Fire Marshal’s Office to perform the ordered inspection. The inspector concluded that the plaintiff needed to install the fire alarm system, noting, “the current fire alarm system did not meet NFPA standards to alert all areas of the building” and “the fire alarm system plan submitted had never been approved by the city.”  

The plaintiff filed an amended complaint alleging procedural and substantive claims, including a breach of contract claim based on the 14th Amendment, which states, in part, “nor shall any state deprive any person of life, liberty, or property, without due process of law.”

Determining whether a procedural due process violation has occurred entails a two-step inquiry: whether the plaintiff has shown the deprivation of an interest in life, liberty or property; and whether the procedures followed by the government in depriving the plaintiff of that interest comported with due process of law.

The court said, “Property interests are not created by the Constitution; they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as a state law.” In order to create a property interest, the regulation must give the recipient a legitimate claim of entitlement to the benefit allegedly deprived. The court said that the plaintiff failed to demonstrate any “legitimate claim of entitlement to a certificate of occupancy under Wyoming law.”

The plaintiff could not show the deprivation of a constitutional right and therefore could not prevail on its procedural due process claim, and summary judgment was granted.

READERS ASK 

Q: My contract has a waiver of subrogation clause in it.  The customer who we are currently negotiating with asked us to delete this. What is the benefit of retaining the provision or deleting it as requested by the subscriber? How will this affect my insurance?

A: By including a waiver of subrogation provision in your contract, your subscriber is giving up their insurance carrier’s right to recoup from you any losses or claims they have paid out to your subscriber as a result of any loss they were obligated to pay under their policy with their insured.

There have been cases that have held that it is not appropriate for an insurance company to go after the alarm company for losses they have paid out in accordance with their insurance policy with their insured, the rationale being that an insurance company charges a premium based on the value of the person or property it is protecting, whereas you are receiving a payment based only on the value of the service you provide. Not withstanding that line of thinking, normally the courts do not put the insurance company in a better position than your subscriber, as the insurance company stands in the shoes of your subscriber so that any defenses you may have against your subscriber in litigation would also be available against the insurance company.

Having said that, it still works to your benefit to maintain a waiver of subrogation in your contract with your subscriber as the insurance company would then be precluded from maintaining an action against you if they paid out any money to your subscriber.

If, however, your subscriber insists on deleting the provision, I would not let that stand in the way of proceeding with the contract.