October 28, 2011
*************
**********************
Everyone who reads this forum understands that one of the primary purposes of a properly worded alarm contract is to protect the alarm company from liability by the use of the protective provisions; exculpatory clause, and limitation of liability provision. The properly drafted contract will most likely contain a provision that states that "There are no third party beneficiaries of this contract". What does that mean and why is the provision in the contract?
Your contract defines your relationship with your subscriber and sets the scope of your duty, your performance obligations, and the limits of your exposure for liability and damages. The contract however binds only you and your subscriber, not others. You can't wave the contract and its protective provisions when sued by someone other than your subscriber who signed the contract. Simply put, a third party to the contract is not bound by the terms of that contract.
The flip side of course is, if this third party is not a party to the contract then by what legal theory does this third party sue the alarm company? All causes of action in a lawsuit share at least one common criteria, there must be a duty owed to the injured party by the wrongdoer. So if the cause of action is in breach of contract then the wrongdoer is alleged to have breached the contract. If the cause of action is in tort, then the wrongdoer is alleged to have owed a duty of care, to act reasonably, and to have breached that duty.
Who constitutes a third party to another's contract is sometimes a blurry line. In those situations it helps that the contract terms express in clear language that no third party is intended to be benefited by the contract. In this way the alarm company seeks by contract to convince a Court that no duty was owed to anyone other than the contracting subscriber, and that therefore, the third party, owed no duty, has no claim against the alarm company. The "no third party" language works fairly well and has been enforced by Courts as the general rule. But not all Courts have followed this general rule, and when they don't it leaves the alarm company exposed without it's contractual protection. The erosion of the general rule has arisen in fire cases, and now in a low temperature case in Connecticut.
Here are some examples of third party claims.
Owner of commercial building contracts for intrusion or fire system, then rents out several separated spaces to different tenants. Burglary or fire loss and tenants, not party to any alarm contract, sue alarm company for their losses.
Commercial tenant contracts for burglar alarm. This tenant's premises are broken into, no alarm, intruders break through common wall to next door tenant who doesn't have an alarm.
Husband signs for home alarm. Loss occurs and wife sues for damages.
Homeowner contracts for intrusion alarm with added smoke detector. Fire which spreads to neighbor's home. Neighbor sues alarm company.
Commercial building installs fire alarm system. Fire. Tenants and adjoining property owners sue alarm company.
All of the above examples share a common fact - none of the suing parties signed up for or paid for alarm services. Thus, none are covered by the alarm contract and none are therefore subject to the exculpatory clause or limitation of liability clause. None of them have a contract cause of action against the alarm company and none sue as a third party beneficiary of that contract. In fact, if they did sue as a third party beneficiary the alarm company could take the position that the third party should be bound by the contract terms, just as the signer of the contract would be. So if not suing under the contract, then what allegation supports the "duty" criteria?
Non contracting parties seek to circumvent the alarm protective provisions and sneer the alarm company by claiming that once the alarm company enters upon it's performance [for its subscriber] it owes a duty to others, sort of a greater good theory if you will. The logic goes something like this - you can't install a commercial fire alarm in Manhattan without expecting greater loss than to your subscriber if you fail to perform or negligently perform. Others in near proximity to your subscriber have, as the argument goes, a right to expect some protection by your proper and reasonable performance of your duties to your subscriber. Also that as a matter of public policy, you should be held to have a duty to others to act reasonably, and if you don't, you may have liability for your share or contribution to the loss.
No, I don't like the argument, but it has been made and prevailed in some courts.
In a recent Connecticut case a law firm tenant in a commercial building signed a low temperature alarm contract for their space on the second and third floors. The tenant's principals were also the principals of the entity that owned the building, but it was a different entity and the owner entity didn't sign the alarm contract. Temperature dropped, pipe on fourth floor broke and water flowed for more than a day. Although an alarm signals was received, for whatever reason the central station did not dispatch or notify anyone of the alarm condition. The building owner's insurance company, suing under its subrogation rights, sued the installer and central station, claiming that it was not bound by the terms of the alarm contract that would bar recovery because of the protective provisions. The Court noted the positions as thus:
" In the present case, the defendants argue they are entitled to summary judgment in their favor
on the ground that the plaintiff stands in the shoes of its insured and is subject to all contractual
defenses that the defendants would have to the insured's claims, including an anti-subrogation
clause, a time limitations clause and a liquidated damages clause that were in the alarm contracts.
Alternatively, the defendants argue that they owed the plaintiff no duty of care and that it was the
plaintiff's insured who was negligent, not the defendants, in causing the pipes to freeze and burst.
In response, the plaintiff counters that neither it nor its insured is a party to the alarm contracts with
the defendants and thus none of the contractual defenses apply to this action. Further, the plaintiff argues
that the defendants do owe a duty to its insured, the property owner, and that at a minimum, a
question of fact exists as to whether it was foreseeable that low temperatures in the building in January,
if not promptly responded to, could cause damage to the entire building and not just to the two
floors where the alarm system was installed."
Regarding the issue of duty to a non contracting party, the Court had this to say:
"Alternatively, the defendants claim that they are entitled to summary judgment in their favor on
the ground that they owe no duty to the plaintiff and thus cannot be held liable for negligence. 'The
essential elements of a cause of action in negligence are well established: duty; breach of that
duty; causation; and actual injury.' (Internal quotation marks omitted.) Considine v. Waterbury, 279
Conn. 830, 859, 905 A.2d 70 (2006). 'Duty is a legal conclusion about relationships between individuals,
made after the fact, and imperative to a negligence cause of action. The nature of the duty,
and the specific persons to whom it is owed, are determined by the circumstances surrounding the conduct
of the individual ... Although it has been said that no universal test for [duty] ever has been formulated
... our threshold inquiry has always been whether the specific harm alleged by the plaintiff
was foreseeable to the defendant. The ultimate test of the existence of the duty to use care is found in
the foreseeability that harm may result if it is not exercised ... By that is not meant that one charged
with negligence must be found actually to have foreseen the probability of harm or that the particular
injury which resulted was foreseeable, but the test is, would the ordinary [person] in the defendant's
position, knowing what he knew or should have known, anticipate that harm of the general
nature of that suffered was likely to result ...'A simple conclusion that the harm to the
plaintiff was foreseeable, however, cannot by itself mandate a determination that a legal duty exists.
Many harms are quite literally foreseeable, yet for pragmatic reasons, no recovery is allowed ... A further
inquiry must be made, for we recognize that duty is not sacrosanct in itself, but is only an expression
of the sum total of those considerations of policy which lead the law to say that the plaintiff is
entitled to protection ... The final step in the duty inquiry, then, is to make a determination of the fundamental
policy of the law, as to whether the defendant's responsibility should extend to such results.
(Internal quotation marks omitted.) Pelletier v. Sordoni/Skanska Construction Co., 286 Conn.
563, 593–94, 945 A.2d 388 (2008)."
The Connecticut case is in early stages and the Court's ruling was in connection with a motion for summary judgment. On such a motion the Court only has to find issues of fact to deny the motion and force the parties to continue with the case through trial. Here is how this court framed the factual dispute and then denied the summary judgment motion:
"The evidence reveals there is a genuine issue of material fact with respect to both the cause
and foreseeability of the loss. There is evidence that the defendant [Central Station] placed several calls to
the subject premises when the low temperature alarm was triggered but that no calls were placed to
police or fire authorities. There is also a contested factual issue as to whether it was foreseeable that
low temperatures, if not promptly responded to by the defendants, could lead to damage that would affect
other areas in the subject premises beyond the two floors occupied by Suisman.
Furthermore, neither the plaintiff nor the defendants have been able to cite any Connecticut authority
concerning whether an alarm company owes a duty of care to third parties. Both sides have cited
to cases in other jurisdictions that have decided whether such a duty exists. Absent any controlling
precedent, however, this court must conclude that the defendants have not met their burden of establishing
they are entitled to a judgment as a matter of law. Coupled with the factual disputes regarding
the cause and foreseeability of the loss, this renders summary judgment particularly inappropriate."
We will have to wait for a trial and perhaps appeal [unless this case settles] for further guidance, at least in Connecticut.