September 22, 2011
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A Federal Appeals Court sitting in Minnesota revered a Federal District Court's order which granted summary judgment dismissing a claim against an alarm company. The alarm company was monitoring a low temperature alarm, received a low temp signal, apparently called an old disconnected number or didn't call at all, pipe froze, $250,000 in damages. Homeowner's insurance carrier sued under its subrogation rights.
Plaintiff claimed the alarm company was guilty of willful and wanton negligence.
The appeals court found that the District Court had misapplied the law by confusing "willful and wanton negligence" with "gross negligence". The District Court agreed that the protective provisions in the alarm contract [exculpatory and limitation of liability clauses] would not be enforced if there was showing of willful and wanton negligence. The Court then found that Minnesota law didn't clearly define "willful and wanton" negligence, so the Court looked to New York, equating willful and wanton negligence with "gross negligence". In New York there are a number of cases that describe what does not amount to gross negligence, and missing a single call would clearly not rise to the criteria of gross negligence.
On appeal however the Appeal Court found that Minnesota's willful and wanton standard was distinguishable from New York's gross negligence standard, and that the District Court made an error relying on New York's standard.
New York's standard for gross negligence can be described as conduct evinces recklessness. New York cases describe gross negligence in several ways, and include wanton and willful conduct in the description. The Appeals Court first determined that it was wrong to apply New York law; Minnesota law had to be applied and it was different than New York law.
It is interesting and important to note that this Federal Appeal Court holds that its ruling and interpretation in this case is limited to Minnesota, because Minnesota has a peculiar standard. Willful and wanton negligence is defined as "as failure to exercise ordinary care after discovering another in a position of peril". The Appeals Court flatly states that New York's gross negligence standard is higher than Minnesota's willful and wanton standard, but that Minnesota law should apply.
For purposes of this article there is no reason to analyze the court's discussion. You can read the decision on my web site under Minnesota leading cases. I do want to point out that the Appeals Court does express that exculpatory clauses are disfavored in Minnesota (and everywhere else) and will not be enforced (in Minnesota) if the clause "purports to release the benefited party from liability for intentional, willful or wanton acts". Minnesota courts hold that the clauses do not violate pubic policy when applied to claims of ordinary negligence.
This case is not over yet. It has to go back for a trial. Also, another important issue was not decided by the District Court, and although noted by the Appeal Court, not dealt with. There is a waiver of subrogation clause in the contract and this is a subrogation claim. The case may get dismissed on that basis. On a factual level, the alarm company's audio recordings can't locate the operator's call. [they should be able to check the phone bill at least to see if the call was placed]. Case is Gage v HSM Electronic Protective Services, et al. US Court of Appeals, Eighth Circuit.