Source: http://www.lawlink.com/research/CaseLevel3/60503
Timestamp: 2019-04-26 15:55:50+00:00

Document:
FIREMAN'S FUND INSURANCE COMPANY, Plaintiff and Appellant, v. MORSE SIGNAL DEVICES et al., Defendants and Respondents.
Harris & MacAuley and Richard G. Harris for Plaintiff and Appellant.
Lawler, Felix & Hall, Robert P. Mallory and Wayne S. Grajewski as Amici Curiae on behalf of Defendants and Respondents.
Fireman's Fund Insurance Company (Fireman's) appeals from a judgment of dismissal following an order sustaining, without leave to amend, the demurrers of defendants Morse Signal Devices, American Protection Industries, U.S. Burglar Alarm Company, Inc., Wackenhut Protective Systems, Alarmco, Inc., and the Western Burglar and Fire Alarm Association (hereinafter collectively referred to as Alarm Companies). The principal issues on appeal involve the subrogation claims of Fireman's, and the enforceability of the liquidated damages provisions in the Alarm Companies' service contracts. For reasons to follow, we have concluded that the trial court properly sustained the demurrers without leave to amend.
Fireman's brought an action against the Alarm Companies claiming subrogation to losses arising from eleven property damage incidents sustained by Fireman's insureds.
Fireman's complaint alleges 30 causes of action based on breach of contract, negligence, gross negligence, or negligent misrepresentation. A 31st cause of action seeks declaratory relief to invalidate liquidated damage clauses contained in contracts between the Alarm Companies and Fireman's insureds. Finally, the 32d cause of action alleges violations under the Cartwright Act for conspiracy to fix prices by inclusion of liquidated damage provisions in the Alarm Companies' service contracts.
Prior to filing the third amended complaint before us, the court below ruled that recovery of money damages by Fireman's was legally limited to amounts provided in liquidated damage provisions. Since the liquidated damage amounts were below the jurisdictional requirements of the superior court, the superior court transferred the action to the municipal court. Fireman's filed a petition for writ of mandamus. Division One of this court issued a writ directing the superior court to accept jurisdiction, noting that "Respondent court erred in finding, on demurrer, that the damages recoverable by petitioner are limited by the liquidated damage clauses in the contracts." The Alarm Companies then demurred to the third amended complaint for failure to state a cause of action. The court below again transferred the action to the municipal court. Fireman's again petitioned to [151 Cal.App.3d 685] Division One of this court to compel the superior court to assume jurisdiction. Division One issued a writ of mandamus again ordering the superior court to assume jurisdiction. Division One, however, did not review the nonjurisdictional basis for the demurrer, stating that "petitioner has not established that this matter is within the narrow exception for writ review of pleading matters set forth inTaylor v. Superior Court  24 Cal.3d 890 [157 Cal.Rptr. 693, 598 P.2d 854], and Coulter v. Superior Court  21 Cal.3d 144 ...."
The court below then modified its order and sustained the Alarm Companies' demurrers "on all grounds except jurisdictional; ...." Subsequently, the court below entered a judgment of dismissal. It is from that judgment of dismissal that Fireman's now appeals.
In each of 11 separate incidents a fire or burglary occurred at the insured's premises. The alarm system failed to function properly, either because of mechanical failure or because of the failure of the Alarm Companies' personnel to notify police or fire departments upon receiving signals from otherwise properly functioning systems. Fireman's alleges that where the Alarm Companies received alarm signals but failed to notify the proper officials, such "knowing" failure amounted to gross negligence. Fireman's further alleges that as a proximate result of the Alarm Companies' breach of its contractual duty or its negligent or grossly negligent acts, the fires or burglaries were not aborted. Fireman's seeks invalidation of the liquidated damage provisions.
In Meyers, the nominal plaintiff, Meyers, hired a manager who forged checks that were made payable to Meyers. The checks were negotiated through the defendant-bank. Meyers had taken out an insurance bond to indemnify himself from any losses that might occur from the manager's wrongful acts. The insurance company reimbursed Meyers and brought an action against the bank. The bank was contractually obligated for presenting checks with false endorsements. Had the bank properly required identification of the endorsements, it might have prevented the loss. The court, [151 Cal.App.3d 687] however, refused to equitably subrogate the insurance company to Meyer's cause of action, even though the bank breached its contract.
The Meyers court concluded: "Here, the indemnitor has discharged its primary contract liability. It has paid what it contracted to pay, and has retained to its own use the premiums and benefits of such contract. It now seeks to recover from the bank the amount thus paid. It must be conceded that the bank is an innocent third party, whose duty to the employer was based upon an entirely different theory of contract, with which the indemnitor was not in privity. Neither the indemnitor nor the bank was the wrongdoer, but by independent contract obligation each was liable to the employer. In equity, it cannot be said that the satisfaction by the bonding company of its primary liability." (Id, at p. 102.) As the court noted in Patent Scaffolding Co. v. William Simpson Constr. Co. (1967) 256 Cal.App.2d 506, 514 [64 Cal.Rptr. 187], in drawing upon Meyers: "The bank was a 'wrongdoer' in the sense that it breached its contract with its depositor, but the bank's breach did not cause the loss. The forger was the miscreant."
[2a] In the case at bench, Fireman's has alleged that the Alarm Companies' negligence proximately caused the loss Fireman's insured against. Although Fireman's attempts to characterize the Alarm Companies' breach as an action in tort, inBetter Food Mkts. v. Amer. Dist. Teleg. Co. (1953) 40 Cal.2d 179, 187-188 [253 P.2d 10, 42 A.L.R.2d 580], a case against an alarm company sued for similar failures, the court concluded: "However, the plaintiff makes no claim that a duty was owed to it outside of that created by the contract, and no breach of duty was alleged other than a failure to render the contracted for service. Although an action in tort may sometimes be brought for the negligent breach of a contractual duty [citation], still the nature of the duty owed and the consequences of its breach must be determined by reference to the contract which created that duty."
Fireman's does not allege that the Alarm Companies created the fires or perpetrated the burglaries. While the Alarm Companies may have been negligent in performance of their contractual duties, their negligence did not create the harm.
[2b] In the case at bench, the primary cause of the loss is the creator of the fire or the burglar. The Alarm Companies' alleged negligence would be secondary to creation of the perils. Moreover, the insureds are in the best position to place a value on the contents of their premises. The insurance company, which charges its premiums based on the extent of insurance coverage, is in the best position to spread the risks assumed.
In finding that in such alarm service contracts it was impracticable as a matter of law to fix actual damages, the court noted inBetter Food Mkts. v. Amer. Dist. Teleg. Co., supra, 40 Cal.2d at page 186: "The possibilities of the consequences of a failure of the defendant to perform its obligation under the contract are innumerable .... Where there had been a failure of performance and a loss, what part of that loss could be attributed to the failure of performance; or how much of that loss would have resulted had there not been a failure of performance?"
This is not a case where the reasonable expectations of the parties to the alarm service contracts have been frustrated. The insureds procured insurance for the very losses that were suffered.
Thus, we do not find that Fireman's is equitably subrogated to any of the insureds' causes of action based on breach of contract or negligence. This is a sufficient basis to affirm the judgment of dismissal, apart from the enforceability of the liquidated damage provisions.
However, the court in Better Food Mkts. strained in finding the second element--that the amount provided represented a reasonable endeavor to estimate a fair average compensation for any loss that might be sustained. The court suggested: "There might be the theft of a ham, or of a truckload of goods, or the contents of a safe." (Id, at p. 186.) As the dissent commented: "[T]his court goes to great lengths to uphold the validity of a provision such as this. Note the 'possibilities' which it considers might have happened from a failure of the burglar detection system. It is said that 'Entrances to the building after working hours might be made by persons having authority as well as by burglars or by persons bent on mischief. They might or might not cause damage. There might be the theft of a ham, or of a truckload of goods, or the contents of a safe. There might be a breaking in for the purpose of theft and no theft. If money was taken it might be a few dollars or many thousands. Books might be tampered with ....'" (Id, at pp. 190-191.) The majority concluded that because of the various possibilities, $50 represented a reasonable endeavor to estimate a fair average compensation for losses that might be sustained.
 Fireman's alleges that the anticompetitive inclusion of liquidated damage provisions in alarm industry contracts amounts to a conspired price-fixing scheme. Fireman's further contends that because it has paid the fire and theft losses of its insureds, Fireman's is subrogated to the cause of action for the alleged restraint of trade.
Assuming that Fireman's is able to show that the limitation of liability provision is a pricing element under the alarm service contracts, Fireman's is not subrogated to that claim.
What is the loss under any purported price-fixing scheme to the insured? The loss, if any, to the insured consists either of higher priced alarm service or compelled costs such as the additional insurance premiums the insured may be burdened with to gain similar pricing terms.
The judgment of dismissal of the court below is affirmed.
Schauer, P. J., and Johnson, J., concurred.
?FN 1. One of the eleven alarm service contracts before us should have been governed under the new Civil Code section 1671. The subject contract was executed October 15, 1973. The primary term was for five years with automatic five-year renewal periods. Thus the contract was automatically renewed October 15, 1978, at which time it should have been governed under new section 1671.

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