A just published decision in Colorado, an appellate court case, deals with two important issues to the alarm industry. I have selected parts of the decision below
for you to read, and the entire decision will be posted on my web site at http://www.kirschenbaumesq.com/casesbystate.htm. Look under Colorado. In a nut shell. The lower court granted the alarm company summary judgment
on two grounds. First, that there was no separate action in tort; the action was for breach of contract only, and the limitation of liability clause in the alarm contract insulated the alarm company. The appeals court reversed in part.
The appeals court agreed that no tort action was stated, only contract. But this
court then held that the complaint sufficiently alleged willful and wanton conduct,
and treating the matter as one of first impression in Colorado, held that the limitation
of liability clause [and for that matter an exculpatory clause or liquidated damage clause] will not be enforced in Colorado when willful and wanton conduct [gross negligence] is sufficiently alleged with facts that support those allegations. The case was therefore sent back to the lower court for trial. You can read the decision on my web site. Case is titled: United States Fire Insurance Co.; Commonwealth I
nsurance, et. al. v. Sonitrol Management Corporation, COURT OF APPEALS OF COLORADO, DIVISION TWO,
2008 Colo. App. LEXIS 1172. Here are excerpts from the decision:
Facts:
Core-Mark distributes merchandise to convenience stores. It leased
approximately 90,000 square feet of a 120,000 square foot warehouse for storing
inventory. The Insurers insured the warehouse and inventory.
Sonitrol markets security and fire alarm services, and in 1995 contracted
with Core-Mark to install and monitor an alarm system to protect the warehouse.
Sonitrol's services included remote monitoring of microphones that could
detect sounds made by intrusions into the warehouse. These microphones, or audio
detectors, would send an audio activation signal when they detected a sound
exceeding a minimum volume, and record and store five seconds of the audio. The
alarm system would also make an automated telephone call to a central monitoring
facility. The operators monitoring the console in that facility were instructed
to replay the five seconds of stored audio recording and listen to live audio
transmission for at least forty-five seconds. If the operator heard a burglary
in progress, he or she would dispatch the local police. However, if the operator
determined the activation was a false alarm, the operator could reset the alarm.
Resetting the alarm erased the stored audio and terminated the telephone
connection to the monitored premises.
In December 2002, a burglar entered Core-Mark's warehouse while it was closed
over the weekend. He returned a little later with two confederates, and the
three looted the warehouse for approximately three hours. They made no effort to
be quiet, but shouted to each other, threw boxes around, and used a noisy
gravity chute lined with steel rollers to move boxes. When they were ready to
leave, one of the burglars smashed boxes of flammable liquids, pulled down large
jugs of methanol, and set two fires at 8:42 a.m. The fire department arrived on
the scene eleven minutes later at 8:53 a.m., alerted by a passerby, but it was
too late to save the property.
During this episode, Sonitrol's off-site monitoring center received audio
activations caused by the noise the burglars created. Two different Sonitrol
employees received the alarms and reacted as follows: (1) audio activation at
1:35 a.m., no replay of stored audio, alarm reset in 36 seconds, no call to
police; (2) audio activation at 6:50 a.m., no replay of stored audio, alarm
reset in 4 seconds, no call to police; (3) audio activation at 7:29 a.m., no
replay of stored audio, alarm reset in 40 seconds, no call to police; (4) audio
activation at 7:56 a.m., no replay of stored audio, alarm reset in 1 minute and
49 seconds, no call to police; (5) audio activation at 8:36 a.m., no replay of
stored audio, alarm reset in 2 minutes and 10 seconds, no call to police; (6)
audio activation at 8:44 a.m., operator replayed stored audio, no call to
police; (7) 8:46 a.m. (four minutes after fire started), the telephone
connection between warehouse and monitoring center was severed. At 9:05, the
Sonitrol employee called the fire department, which had been at the scene for
twelve minutes.
Despite the fire department's efforts, the fire burned for a week and
destroyed the building and all the inventory, resulting in a loss of
approximately $ 20 million.
Core-Mark and the Insurers filed separate lawsuits against Sonitrol. As
pertinent to this appeal, they asserted claims for (1) negligence, (2) gross
negligence, and (3) breach of contract.
ISSUE:
Sonitrol moved for summary judgment. In granting summary judgment on the
Insurers' claims, the district court concluded as pertinent here: (1) the economic loss rule barred tort claims (applying a previous order as the law of the case); and (2) the limitation of liability clause was enforceable as to the Insurers as well as Core-Mark
(adopting the reasoning of a previous order).
Core-Mark and the Insurers contend the district court erred in dismissing
their negligence claims under the economic loss rule, because Sonitrol owed an
independent duty of care. Sonitrol argues that the duty specified in the burglar
alarm contract and the alleged duty in tort are identical, and so there is no
duty independent of that created by the contract. We agree with Sonitrol.
Core-Mark does not state an independent tort duty because
the alleged tort duty and the duty outlined in the contract are identical. Thus,
Core-Mark's losses are economic losses proceeding from the breach of a
contractual duty, and Core-Mark's tort claim is barred by the economic loss
rule.
Core-Mark and the Insurers contend the district court erred in holding that
the limitation of liability clause in the contract with Sonitrol was
enforceable, because the issue of whether Sonitrol acted willfully and wantonly
should have been decided by the fact finder. We agree.
Sonitrol argues that the limitation of liability clause in the contract is
not an exculpatory clause but a liquidated damages clause, and therefore the
analysis for willful and wanton conduct does not apply. Accordingly, Sonitrol
contends the limitation of liability clause is enforceable regardless of its own
conduct. We disagree.
Exculpatory clauses insulating a party from its own negligence, though
disfavored, are permitted in Colorado if one party is not at a significant
disadvantage in bargaining.
In the present case, we must consider whether this public policy exception
for willful and wanton conduct that applies to an exculpatory clause also
applies to a limitation of liability clause
We need not decide here whether the clause in question is a limitation of
liability clause, a liquidated damages clause, or an exculpatory clause, because
the general rule applies to all of them. We hold that if the effect of such a
clause is to insulate a party from its own negligence, it does not shield
against a claim for willful and wanton conduct.
Willful and Wanton Conduct
Core-Mark and the Insurers contend they have presented ample evidence of a
triable issue of fact as to whether Sonitrol's failure to notify emergency
services was willful and wanton. Sonitrol contends that, as a matter of law,
plaintiffs' allegations amount to simple negligence. Because all inferences from
the evidence must be drawn in favor of the nonmoving party, we agree with
Core-Mark and the Insurers that a triable issue of fact exists. See A.C.
Excavating, 114 P.3d at 865.
"Willful and wanton conduct is purposeful conduct committed recklessly that
exhibits an intent consciously to disregard the safety of others. Such conduct
extends beyond mere unreasonableness." Forman v. Brown, 944 P.2d 559, 564
(Colo.App. 1996). "Willful and wanton conduct or willful and reckless disregard"
means:
conduct purposefully committed which the actor must have realized
as dangerous, done heedlessly and recklessly, without regard to
consequences, or of the rights and safety of others, particularly the
plaintiff.
Here, multiple audio activations were received by two different operators
over a period of several hours. The operators reset the alarms without listening
to recorded audio or live audio, or calling police. On deposition, one operator
could offer no explanation of her conduct, and appeared to have little memory of
what happened. Had the operators listened, they could have heard the intruders
shouting sending boxes along steel rollers, and dropping and smashing
merchandise. Even after the last telephone connection was severed by fire,
nineteen minutes elapsed before the operator called the fire department.
A jury could conclude this was purposeful conduct committed recklessly with
conscious disregard for the rights and safety of others. § 13-21-102(1)(b);
CJI-Civ. 4th 9:30; see Royal Indem. Co., 255 F. Supp. 2d at 499, 509 (security
employee did not contact supervisor upon sounding of four consecutive fire
alarms, instead attempting to reset alarms; genuine issue of material fact as to
willful or wanton conduct); New Light Co. v. Wells Fargo Alarm Servs., 525
N.W.2d 25 (Neb. 1994)(remanding for further proceedings as to whether failure to
install fire-sensing device in room with main fire alarm control panel was
willful and wanton); Sommer, 593 N.E.2d at 1367-68 (untrained dispatcher thought
company intended system to be taken out of service and ignored fire signals;
question of gross negligence for jury to determine). But see Fox Alarm Co., 913
So. 2d at 1080 (failure to notify police of subsequent alarm signals after
dispatcher had notified police was not substantial evidence of wantonness).
We also note that although the claim for gross negligence was dismissed with
respect to Core-Mark, the claim for breach of contract alleged "willful and
wanton disregard for the safety of persons and property at the Core-Mark
Warehouse." Thus, Core-Mark properly pleaded willful and wanton conduct.
Giving Core-Mark and the Insurers the benefit of all favorable inferences as
we must, we conclude that whether Sonitrol's conduct was willful and wanton is a
question of fact for the jury to determine. See Forman, 944 P.2d at 564.
Accordingly, we further conclude that the district court was premature in
granting summary judgment as to the applicability of the limitation of liability
clause.
Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
200 Garden City Plaza
Suite 500
Garden City, NY 11530
516 747 6700 x 201
email me at
Ken@KirschenbaumEsq.com
visit our website at
www.KirschenbaumEsq.com