Does Monitoring Contract With Tenants Entitle Building Insurance Provider to Reimbursement?
An insurance company (the plaintiff) issued a policy of insurance to the owners (the insured) of the property. A burglary and fire occurred and the plaintiff paid the insured for the damage. The plaintiff then filed suit against the alarm company to recover monies paid to the insured, claiming that the theft and arson occurred because the alarm company failed to notify either the police or tenants of the alarm activity in a timely manner.
The defendant alarm company moved to dismiss the complaint on the grounds that the complaint failed to allege that the defendant owed any duty, as the defendant’s agreement for service was with the tenant and not the owner of the building. The defendant requested the court interpret the terms of its contract and find that the plaintiff cannot assert any claim to recoup the monies it paid in any event. The defendant alleged the plaintiff does not recognize a common-law duty on the part of security companies to provide adequate alarm monitoring services.
The defendant pointed out that the plaintiff sought indemnity for monies paid as a result of the burglary and arson by way of a subrogation claim. In a subrogation action, an insurer stands in the shoes of its insureds and therefore does not enjoy greater rights. The defendant argued that because it was the tenant that had the alarm system installed, the plaintiff failed to identify any duties owed by the alarm company to the plaintiff’s insured. The court agreed.
The plaintiff provided no explanation as to how any duties and/or obligations stemming from that alarm system inured to the benefit of the plaintiff’s insured as owners of the property. Absent such explanation, the plaintiff failed to show how the defendant owed any duty to its insured that the plaintiff could claim by way of subrogation.
The United States District Court, E.D. California found that “Plaintiffs have not pointed to, nor has this court found, a single case in which a court held … that an alarm company’s failure to notify the relevant parties of a received burglar alarm signal created a duty outside of the contract and therefore constituted negligence. The court ruled the Defendant’s Motion to Dismiss is granted on grounds that Plaintiff has not demonstrated any standing to pursue the lawsuit. If Plaintiff wished to do so, it may file a Second Amended Complaint not later than 20 days from the date of this Memorandum and Order is electronically filed. Failure to file a further amended pleading within those time parameters will result in this action being dismissed without leave to amend upon no further notice to the parties.”
In an apparent attempt to argue that no leave to amend should be permitted, the defendant alarm company contended that in the event that the insurance company’s insureds are deemed to be third party beneficiaries to the protections afforded by the monitoring system, the insurance company’s insureds must also be bound by the terms of the contract.
The court pointed out that the plaintiff never set forth the contract in its complaint and since the court found the plaintiff had no fundamental standing to sue, it need not address the additional argument that California law fails to recognize any general duty on behalf of a security company to properly monitor and respond to a customer’s alarm system. The court did point out, however, that pertinent authority appeared to preclude claims for both negligence and gross negligence on grounds that no predicate duties are owed in this instance, citing Fireman’s Fund Ins. Co. v. Morse Signal Devices, which held that an alarm company is not liable for negligence because any duty owed by an alarm company is premised not upon any common-law duty of care but instead upon the company’s failure to provide agreed-upon service in a contractual relationship.