ST. PAUL FIRE AND MARINE INSURANCE COMPANY, as subrogee of ERICO
INTERNATIONAL CORP., Plaintiff, v. WELLS FARGO ALARM SERVICES, Defendant.
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY;1995 U.S. Dist.
LEXIS 6749; May 9, 1995, Decided
May 9, 1995, FILED
COUNSEL: [*1] SPECTOR GADON & ROSEN, P.C., By: Amy B. Goldstein, Esq.,
Moorestown, NJ, for Plaintiff.
BOLGER PICKER HANKIN & TANNENBAUM, By: Jeffery S. Brenner, Esq., Cherry
Hill, NJ, for Defendant.
JUDGES: Joseph E. Irenas, U.S.D.J.
OPINIONBY: Joseph E. Irenas
IRENAS, District Judge:
On March 28, 1989, Erico Fastening Systems ("Erico") contracted with
defendant Wells Fargo Alarm Services ("Wells Fargo") to have Wells Fargo
install a burglar and fire alarm system at Erico's property in Moorestown,
New Jersey. On October 20, 1991, the Moorestown property was damaged by
fire, and the alarm did not respond. Plaintiff St. Paul Fire & Marine
Insurance Company ("St. Paul"), as subrogee of Erico, alleges that Wells
Fargo is responsible for the damage caused by the fire, while Wells Fargo
argues that its liability is capped by a limitation of liability clause in
the Wells Fargo-Erico contract.
In accordance with an order by Magistrate Judge Kugler, discovery to this
point has been limited to the enforceability of the contract clause limiting
Wells Fargo's liability. Wells Fargo now moves for partial summary judgment,
arguing that the limitation clause is enforceable unless plaintiff [*2] can
prove that Wells Fargo engaged in willful and wanton misconduct. The motion
will be granted.
I. SUMMARY JUDGMENT STANDARD
Under Fed. R. Civ. P. Rule 56(c), "summary judgment is proper 'if the
pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as
a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d
265, 106 S. Ct. 2548 (1986). It is not the role of the judge to weigh the
evidence or to evaluate its credibility, but to determine whether there is a
genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). There is no issue for trial
unless there is sufficient evidence favoring the nonmoving party such that a
reasonable jury could return a verdict for that party. Id.
Discovery in this case to date has been limited to the enforceability of the
limitation of liability clause in the Erico-Wells Fargo contract. Therefore,
as to those facts outside the scope of discovery, we will accept as true
[*3] the allegations of plaintiff's complaint.
By contract dated November 21, 1988, and signed March 28, 1989, Wells Fargo
agreed to provide a centrally monitored burglar and fire alarm system for
the Erico property in Moorestown. (Defendant's Ex. "A".) By October of 1991,
the Moorestown property was vacant, and the electricity had been cut off. On
October 10, 1991, Wells Fargo made a service call to the Moorestown
property, and determined that a back-up battery was required. Wells Fargo
received the parts to install the back-up battery on October 17, 1991, but
had not done so by October 20, the date that vandals allegedly started a
fire at the property.
Plaintiff's subsequent investigations have allegedly shown that on October
20, 1991, the fire alarm system was not operating due to the absence of the
back-up battery. Furthermore, plaintiff alleges that Wells Fargo failed to
notify local fire officials of the disruption of the alarm service, contrary
to its duty pursuant to N.J.A.C. 5:18-3.2(a)F-403.1. (Plaintiff's Ex. "D".)
Wells Fargo's sole argument at this time is that its liability, if any, is
capped by the terms of the contract. Paragraph "D" of the Erico-Wells Fargo
contract [*4] states, in boldface capital type:
D. IT IS UNDERSTOOD AND AGREED BY SUBSCRIBER THAT WELLS FARGO ALARM IS NOT
AN INSURER; THAT THE SUMS PAYABLE HEREUNDER TO WELLS FARGO ALARM BY
SUBSCRIBER ARE BASED UPON THE VALUE OF SERVICES OFFERED AND THE SCOPE OF THE
LIABILITY UNDERTAKEN AND SUCH SUMS ARE NOT RELATED TO THE VALUE OF THE
PROPERTY BELONGING TO THE SUBSCRIBER OR TO OTHERS LOCATED ON SUBSCRIBER'S
PREMISES. SUBSCRIBER FURTHER AGREES AND PROMISES THAT, IF IT DESIRES
INSURANCE, SUBSCRIBER'S INSURANCE WILL BE OBTAINED FROM AN INSURANCE COMPANY
IN SUCH AMOUNT AS SUBSCRIBER SHALL DEEM NECESSARY TO PROTECT ITS INTERESTS.
SUBSCRIBER DOES NOT AND WILL NOT SEEK INDEMNITY FROM WELLS FARGO ALARM
AGAINST ANY DAMAGES OR LOSSES CAUSED BY HAZARDS TO SUBSCRIBER'S PROPERTY.
WELLS FARGO ALARM MAKES NO WARRANTY, EXPRESS OR IMPLIED, THAT THE SYSTEMS IT
INSTALLS OR THE SERVICES IT FURNISHES WILL AVERT OR PREVENT OCCURRENCES, OR
THE CONSEQUENCES THEREFROM, WHICH THE SYSTEMS AND SERVICES ARE DESIGNED TO
DETECT. SUBSCRIBER AGREES THAT WELLS FARGO ALARM SHALL NOT BE LIABLE FOR ANY
OF THE SUBSCRIBER'S LOSSES OR DAMAGES, IRRESPECTIVE OF ORIGIN, TO PERSONS OR
TO PROPERTY, WHETHER DIRECTLY OR INDIRECTLY [*5] CAUSED BY PERFORMANCE OR
NONPERFORMANCE OF ANY OBLIGATION IMPOSED BY THIS AGREEMENT OR BY NEGLIGENT
ACTS OR OMISSIONS OF WELLS FARGO ALARM, ITS AGENTS OR EMPLOYEES. IT IS
AGREED THAT IF WELLS FARGO ALARM SHOULD BE FOUND LIABLE FOR ANY LOSSES OR
DAMAGES ATTRIBUTABLE TO A FAILURE OF SYSTEMS OR SERVICES IN ANY RESPECT, ITS
LIABILITY SHALL BE LIMITED TO THE ANNUAL CHARGE HEREUNDER, OR $ 10,000.00,
WHICHEVER IS LESS. THE SUBSCRIBER MAY OBTAIN A GREATER LIMITATION OF
LIABILITY, IF DESIRED, BY PAYMENT OF AN INCREASED ANNUAL RATE, WHICH SHALL
BE NEGOTIATED BETWEEN THE SUBSCRIBER AND WELLS FARGO ALARM UPON THE REQUEST
OF THE SUBSCRIBER IN WRITING.
(Defendant's Ex. "A" at P D.) The annual charge under the contract is $
4,729.00. (Id. at P B.) Defendant represents, and plaintiff does not
contest, that Erico had an opportunity to pay an increased annual rate in
exchange for an increased limitation of liability, but declined to do so.
(Walsh Aff.; Defendant's Ex. "B" at PP 3-4.)
The sole issue currently before the court is the scope of the clause
limiting Wells Fargo's liability. Under New Jersey law, exculpatory clauses
in private contracts are generally [*6] enforceable unless a party to the
contract is either under a public duty entailing the exercise of care, such
as a common carrier or public utility, or if there is unequal bargaining
power between the parties. Mayfair Fabrics v. Henley, 48 N.J. 483, 226 A.2d
602, 605 (1967). Under this principle, New Jersey courts have enforced
limitations clauses in private contracts for the supply of alarm services.
Foont-Freedenfeld Corp. v. Electro Protective Corp., 126 N.J. Super. 254,
314 A.2d 69, 71 (App. Div. 1973), aff'd o.b., 64 N.J. 197, 314 A.2d 68
(1974); Abel Holding Co. v. American Dist. Tel. Co., 138 N.J. Super. 137,
350 A.2d 292 (Law Div. 1975), aff'd, 147 N.J. Super. 263, 371 A.2d 111 (App.
Div. 1977); Tessler and Son v. Sonitrol Sec. Sys., 203 N.J. Super. 477, 497
A.2d 530, 532-33 (App. Div. 1985).
The parties, however, disagree as to what degree of conduct falls within the
clause. Defendant, relying primarily on the Tessler decision, claims that it
can be held liable only for "willful and wanton" misconduct. Plaintiff, on
the other hand, relies on the earlier decisions in Kuzmiak v. Brookchester,
33 N.J. Super. 575, 111 A.2d 425 (App. Div. 1955), [*7] and Swisscraft
Novelty Co. v. Alad Realty Corp., 113 N.J. Super. 416, 274 A.2d 59 (App.
Div. 1971), for the proposition that the limitation clause does not apply to
"gross negligence." We believe that defendant presents the better argument.
In Kuzmiak, the court held invalid an exculpatory clause in a contract
between a landlord and a residential tenant. 111 A.2d at 432. Although the
court did state in dicta that "attempted exemption from liability for future
intentional tort or wilful act or gross negligence is generally declared to
be void," 111 A.2d 427, the real substance of its opinion was that a
contract exculpating a residential landlord from liability to a tenant is
either against public policy, id. at 428-30, or invalid due to the unequal
bargaining power of the parties, id. at 430-32. See also Mayfair Fabrics,
226 A.2d at 605 (citing Kuzmiak as "illustrative" of a situation where "the
public interest may call for rejection of an exculpatory clause exacted by
the dominant party").
In Swisscraft, the tenant in a commercial lease required that the roof of
the leased premises be raised. The landlord raised the roof, but did so in a
faulty manner, [*8] and in September of 1966, the tenant suffered $ 3,000
in water damage. 274 A.2d at 61. The tenant informed the landlord of the
leak, and the landlord promised to remedy the condition. However, the
landlord failed to do so, and in October, the tenant suffered an additional
$ 29,000 in water damage. Id.
The tenant filed suit, alleging breach of warranty and negligence.
Defendants moved for summary judgment on the ground of an exculpatory clause
in the contract, which read:
The Landlord shall not be responsible for the loss of or damage to property
. . . occurring in or about the demised premises, by reason of any existing
or future condition, defect, matter or thing in said demised premises or the
property of which the premises are a part, or for the acts, omissions or
negligence of other persons or tenants in and about the said property.
274 A.2d at 62. The tenant cross-moved to file an amended complaint
alleging "gross negligence" and "wilful and wanton misconduct" as to the
October water damage. The trial court granted defendants' motion for summary
judgment and denied the cross-motion to amend the complaint.
The Appellate Division concluded that it would "entertain [*9] no
hesitancy" in affirming the award of summary judgment on plaintiff's
negligence claim. Id. at 64. However, quoting the earlier dicta from
Kuzmiak, the court held that the motion to amend the complaint should have
been granted, and remanded the case for the trial court to determine
"whether defendants' failure to make essential repairs to the roof, after
notice of the September loss and before the October incident, was simple
negligence or mere nonfeasance or, on the other hand, constituted willful or
wanton misconduct or gross negligence, i.e., an extreme departure from the
ordinary standard of care." Id. at 65.
Tessler involved facts similar to those at bar. Defendant had installed a
centrally monitored burglar alarm system at plaintiff's commercial premises.
However, defendant failed to detect a burglary because it had turned down
listening equipment to eliminate "non hostile" noise. 497 A.2d at 532.
Plaintiff brought an action alleging breach of contact, negligence, and
"gross and wanton negligence." Id. at 531. Defendant relied on the
exculpatory clause of the contract, which read:
If Sonitrol should be found liable for loss or damage due to [*10] the
failure of its services in any respect, even if due to Sonitrol's
negligence, its liability shall be limited to a sum equal to ten percent of
the annual monitoring charge for the premises or $ 250 whichever is greater,
as liquidated damages and not as a penalty, . . . . n1
Id. at 532. The case proceeded to trial, but the jury was not asked whether
defendant's conduct constituted "gross and wanton negligence." Id. The jury
found defendant liable, and the court entered a verdict in plaintiff's favor
in the amount of $ 250. Id.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 The court noted that while the clause read like a limitation, it was in
effect exculpatory because it "obviously [was] not the result of an effort
to estimate plaintiff's likely damages from a break-in." 497 A.2d at 532.
Defendant's services cost over $ 600 per year, an amount that would not be
spent to protect $ 250. Id. Cf. Hadley v. Baxendale, 9 Ex. 341, 156 Eng.
Rep. 145 (1854) (party to contract liable for consequential damages that are
reasonably within the contemplation of both parties at the time of the
contract and that are a probable result of the breach).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*11]
The Appellate Division affirmed, holding that the clause barred claims based
on negligence or gross negligence, but not "willful and wanton misconduct."
Id. at 533. The court then defined "willful and wanton misconduct:"
It must appear that the defendant with knowledge of existing conditions, and
conscious from such knowledge that injury will probably or likely result
from his conduct, and with reckless disregard to the consequences,
consciously and intentionally does some wrongful act or omits to discharge
some duty which produces the injurious result.
Id. (quoting McLaughlin v. Rova Farms, Inc., 56 N.J. 288, 266 A.2d 284, 293
(1970)). However, finding that gross negligence differs from ordinary
negligence "only in degree," id., the court held that "an exculpatory clause
which bars suit for negligent performance of contractual duties also bars
suit for very negligent or grossly negligent performance." Id. at 534. On
this issue, the court found itself "constrained to disagree with portions of
Kuzmiak. . . . and Swisscraft. . . . ." Id. n.2. Having concluded that
"willful and wanton misconduct" was the appropriate standard, the court
[*12] affirmed because "defendant's conduct was, at worst, negligent
misjudgment in interpreting the sounds emanating from plaintiff's premises
during the break-in." Id. at 534.
We conclude that Tessler represents the better approach. We do note that
while Tessler cited several cases from other jurisdictions that support its
position, 497 A.2d at 534, some courts have reached the same conclusion as
Kuzmiak and Swisscraft, See Douglas W. Randall, Inc. v. AFA Protective
Systems, 516 F. Supp. 1122 (E.D. Pa. 1981), aff'd mem., 688 F.2d 820 (3d
Cir. 1982) (applying Pennsylvania law). See also Martin J. McMahon,
Annotation, Liability of Person Furnishing, Installing, or Servicing
Burglary or Fire Alarm System for Burglary or Fire Loss, 37 A.L.R.4th 47, §
2[b] at 53 (1985). Nonetheless, we believe that Tessler represents an
accurate prediction of how the New Jersey Supreme Court would rule on the
issue. See First Valley Leasing, Inc. v. Goushy, 795 F. Supp. 693, 698
(D.N.J. 1992) (while state intermediate appellate court decisions are not
automatically controlling on a federal court's analysis of state law, they
"should be examined as indicia of how the [*13] state's highest court might
decide the issue.").
Tessler's approach is consistent with the implied covenant of good faith and
fair dealing under New Jersey law, which prevents a party from undertaking
intentional acts that would injure the right of the other to receive the
fruits of the agreement. Onderdonk v. Presbyterian Homes, 85 N.J. 171, 425
A.2d 1057, 1062 (1981). The approach in Tessler gives full meaning to the
language of the contract and also enforces the notion of the implied
covenant of good faith and fair dealing. Finally, allowing an exception for
only willful and wanton misconduct rather than gross negligence allows
parties to eliminate negligence principles from their contracts. See East
River Steamship Corp. v. Transamerica Delaval, 476 U.S. 858, 866, 90 L. Ed.
2d 865, 106 S. Ct. 2295 (1986) (noting that the modern application of tort
principles to contract law has created the risk that "contract law would
drown in a sea of tort.") (citing G. Gilmore, The Death of Contract 87-94
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n2 We also note the somewhat ironic posture of this case. The contract
clearly informed Erico that Wells Fargo was not an insurer, that Erico could
procure insurance on its own, and that if it wanted a higher limitation of
liability it could pay Wells Fargo a higher annual fee. Erico declined to
pay the higher fee, and instead procured fire insurance from St. Paul, who
now sues Wells Fargo in its role as Erico's subrogee. While an insurer
arguably should not be made to indemnify damages caused by an alarm
company's willful or wanton misconduct, we see no reason why the negotiated
allocation of risk between the three contracting parties should be disturbed
if Wells Fargo's breach of duty, if any, is characterized as "gross
negligence" rather than "ordinary negligence."
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*14]
Plaintiff also argues that Wells Fargo may not limit its liability because
it offers "professional services." See Erlich v. First Nat'l Bank of
Princeton, 208 N.J. Super. 264, 505 A.2d 220 (Law Div. 1984). However, the
court in that case held that allowing investment advisors to exculpate
themselves from liability would run contrary to public policy. 505 A.2d at
233. Although we recognize that Wells Fargo does offer a service involving
"specialized knowledge, labor or skill," id., we see no reason why public
policy would prevent an alarm company from limiting its liability, and case
such as Foont-Freedenfeld, Abel Holding, and Tessler support this position.
However, as defendant candidly concedes, the court cannot grant full summary
judgment because a reasonable factfinder could find "willful and wanton"
misconduct on the part of Wells Fargo. The current record shows that on
October 10, Wells Fargo recognized that the vacant Moorestown property
required a back-up battery, that on October 17, Wells Fargo possessed the
material necessary to install the back-up battery, and that it had not
installed the back-up battery by October 20, the date of the fire. Unlike
Tessler, [*15] which involved only "negligent misjudgment in interpreting
the sounds emanating from plaintiff's premises during the break-in," 497
A.2d at 534, these facts could support a conclusion that Wells Fargo knew of
the existing conditions, knew that injury was likely to result if the
back-up battery was not installed, and intentionally omitted to discharge
its duty to install the battery in a timely manner.
Defendant's motion for partial summary judgment is granted, and Wells
Fargo's liability is limited by the limitations clause in the Wells
Fargo-Erico contract unless plaintiff can prove "willful and wanton
misconduct" on the part of Wells Fargo.
An appropriate order will enter on even date herewith.
Joseph E. Irenas
DATED: May 9, 1995
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, as subrogee of ERICO INTERNATIONAL CORP., Plaintiff, v. WELLS FARGO ALARM SERVICES, Defendant
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, as subrogee of ERICO