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A jury in the New Jersey ADT case awards $4.5 million dollars to the plaintiff to be paid by ADT for a burglary loss. A judge in Massachusetts decides that Protection One must face a jury to decide if Protection One is liable to its subscriber's employees who were robbed at gun point because, they claim, Protection One should have installed the alarm system differently so that a back door remained alarmed when the front door was deactivated. What do these cases have in common and what do they mean to the alarm industry?
Almost all alarm litigation throughout the country has been resolved by judges enforcing the alarm contracts. The contracts contain protective provisions exculpating or limiting liability damages for the alarm company. Interpretation and enforcement of contracts is a legal issue, not factual issue, and therefore a judge would rule on those contract issues. Only when issues of fact are required to be decided would a judge defer to a jury as the decider of the facts (a judge would also be the decider of facts if the case is tried without a jury). Fortunately for the alarm industry most cases have turned on issues pertaining only to the contract language and not other factual issues. Judges across the country have consistently and repeatedly enforced exculpatory and limitation of liability clauses, not just because of contract law, but public policy, which favors limiting alarm company exposure so that the service continues to be available and affordable to the public.
The alarm contract provisions relied upon by the alarm companies define the duty owed by the alarm company to its subscriber and others. When the contract is not precisely written, or when the alarm company does anything outside the scope of the contract, the alarm company faces exposure. There are several different theories of law that a plaintiff can use to pursue a claim against an alarm company. Two of the more common ones are breach of contract and negligence.
Simplified, breach of contract is when the alarm company by contract agreed to do something, failed to do it, and damages ensued. The measure of damages for breach of contract are usually the difference between what someone paid and what they actually got. Damages for breach of contract in an alarm loss context could be arguably limited in a breach of contract cause of action.
Negligence on the other hand, is not limited by contract constraints. The theory supporting a negligence claim is that a person who undertakes to assume a duty to others must exercise reasonable care in the performance of that duty. If the duty to exercise reasonable care is not met then there is liability for damages, and those damages are not limited, but anything and everything that reasonably flows from the breach of exercising reasonable care.
In the ADT case, the ADT contract provided that it was not enforceable unless it was signed by three ADT authorized personnel. Well, only two ADT employees signed it and the judge seized upon that and threw out the contract. That was the end of all of the protective provisions in that contract. It left ADT at the mercy of the jury to decide if ADT was negligent. Without explaining every detail, the jury decided there was a breach of the duty of reasonable care and that the breach caused the loss. During the trial the judge made some remarks about his opinion regarding the enforcement of protective provisions in the alarm contract, to the effect that they should not be enforced because since alarm companies are now licensed in New Jersey they should no longer be able to enforce an exculpatory clause.
These remarks, called dicta, are not part of the judgment. However the alarm industry not wanting to have them have implications in future cases, hired counsel separate from ADT's counsel paid for by contributions from members and the industry. The New Jersey Appellate Court was asked to permit the alarm industry to file an amicus brief and the court refused to allow it.
In the Protection One case the claim came from the subscriber's employees, not the subscriber. The employees signed no contract, were not bound by any contract and were not limited in their claim or damages by any contract terms. Well written alarm contracts provide that there are no third party beneficiaries of the contract. The alarm company intends to owe its duty only to the subscriber and no one else. It also means that the duty owed to the subscriber is limited to the terms of the contract, nothing more. Here the argument is made that any failure by the alarm company in its performance amounts to breach of contract only; and that the failure to perform, or the negligence performance of a contract, gives rise to a breach of contract only, and not a cause of action for negligence.
These arguments hold up country-wide. A typical case would be a building owner who alarms his warehouse, which is leased out to multiple tenants with their own space; and some of who have their own alarm systems. A burglary occurs. A tenant claims loss. The alarm company defends claiming its duty and the alarm installed are for the building owner only. Tenant's claim should be dismissed but different facts can change the result. If you end up before a jury that result is not likely to be good for your alarm company.
An employer installs an alarm system in its premises. Is it unreasonable for employees of this premise to think they have a right to rely on the alarm system? The question should never get to a jury because the alarm company should move to dismiss the case relying upon its contract. If that contract is not precise, or the alarm company did anything outside of that contract then it is an issue for the jury.
The law is an evolving system, changing with the times and society mores. The legal system does have two components, legislation and case law. Judges rely on past cases to decide cases before them. Case law creates precedent which should be followed but hard facts make for bad law and not all past cases are followed. All you can do is make sure you are using well drafted up-to-date contracts and conduct business within their confines.
KEN KIRSCHENBAUM,ESQ of Kirschenbaum & Kirschenbaum PC, Garden City, NY, can be reached via e-mail at Ken@KirschenbaumEsq.com.
author: By Kenneth Kirschenbaum, Esq