Two recent court rulings– one in Texas, one in South Carolina–underscore the importance of contract terms that will protect your business in case of a lawsuit. Does your contract have these vital terms?
First, the case in South Carolina: Bahringer v. ADT Security Services, Inc.
The case involved a house fire in a paraplegic’s home, where the fire alarms in ADT’s system allegedly did not sound at all, leaving the man trapped in his wheelchair in his burning house until neighbors rescued him.
The court granted ADT’s motion for summary judgment, dismissing all but the breach of contract claims against it, but limiting that claim to $500–making it an outright victory for ADT.
The court’s ruling was based on ADT’s contract, which had an exculpatory clause–limiting claims against it for its negligence and limiting damages to $500 or 10% of the annual service charge.
The court ruled these contract provisions were enforceable, even in the face of arguments that ADT owed the homeowner a special duty because of his handicap, that ADT had a superior bargaining power, and that ADT falsely advertised its services.
Great result, ADT!
Now, on to Texas: Moo Soo Kim d/b/a/ Friendly Liquor v. Stanley Convergent Security Solutions.
In that case, a liquor store was allegedly burglarized three months after Stanley installed an alarm system at the store, causing $112,500 in damages. The store owner sued Stanley for breach of contract, claiming that a cellular back-up, which was called for in the installation and service agreement, was never installed.
Stanley asked the court to dismiss the lawsuit based on the contract provisions limiting damages to the annual service charge–which was $1,380 in this case–or $10,000 whichever is less. The court agreed, finding that the damages recoverable were limited to $1,380.
Great result for you too, Stanley!
These decisions, and myriad others, underscore the need to have exculpatory clauses–those that limit liability and damages–in your contract. But, please, make sure the language you use complies with your state’s requirements. For example, some states do not enforce provisions that attempt to exculpate for all behavior. In those states, if the contract says “alarm company is not liable for negligence to any degree” or uses other language that could be construed as the alarm company exculpating itself for gross negligence, willful and wanton, or intentional behavior, it will not be enforced.
Further, while not the basis for the courts’ decisions above, your contract should also include a provision requiring that the customer maintain insurance and look solely to the insurer for recovery, and a subrogation waiver–stating that the customer’s insurance company cannot recoup from you what it has paid for your customer’s insured loss.
It’s good to see courts enforcing these provisions. They are vital to the industry.
If you are so inclined, you can read the court opinions here: Bahringer v. ADT and Moo Soo Kim v. Stanley.