Court decision favors ADT over client, carries implications for security managers
PASADENA, Calif.—ADT came out a winner over one of its business clients in a recent court decision here, and the finding carries implications for other security directors who oversee contracts with security providers.
ADT was sued in federal court by a California jewelry store, Manila Fine Jewelers, which lost $821,000 in a burglary. While the trial court found that “ADT failed [to] properly install [the store’s] alarm system and failed to provide notification services when it actually received an alarm signal from the system,” it said ADT only had to pay the jeweler $1,000, which was the amount of the limited damage provision in the contract ADT had with the business.
The case was appealed to the U.S. Court of Appeals, Ninth Circuit, based here, with the jewelry store contending that ADT should pay more in damages. But, in a recent decision filed in April, the appeals court upheld the lower court’s decision.
Kirschenbaum, of Kirschenbaum & Kirschenbaum, based in Garden City, N.Y, explained the importance of the case to Security Systems News, sister publication to Security Director News.
“The court found that ADT was in fact negligent,” he told SSN. However, Kirschenbaum said, the court “then found that the relationship between ADT and its subscriber was a contractual relationship, that ADT owed its subscriber no duty or obligation independent of the contract, and therefore the contract provision that provided for a liquidated damage of $1,000 should the subscriber suffer a loss was enforceable as a contract term.”
He continued, “Here’s the significance of the decision: The enforcement of the liquidated damage provision, more often referred to in other states as a limited liability clause, is a good decision for the alarm industry.”
In addition, Kirschenbaum said, “a better holding was that the court stated that the claim by the plaintiff in the action was limited to the contract terms. In other words, it was not a tort claim [a non-contract claim], but a breach of contract claim. The court found that there was no independent duty separate and apart from the contract terms.”
Kirschenbaum said contracts with limited liability clauses are common on the industry.
“The standard form contract that I provide to the industry, which the majority of the alarm companies out there use, does have a provision that states that any cause of action between the parties is limited to the terms of the contract, and that provision is in there for the very reason of trying to limit any cause of action to a breach of contract claim, as opposed to a tort claim,” he said.
Bob Tucker, director of public relations for ADT, said the company declined to comment. “The court ruling speaks for itself,” he said.