Opinion ID: 1668833
Heading Depth: 1
Heading Rank: 2

Heading: Enforceability of the Limitation-of-Liability Provision

Text: We first point out that Saia Food and Saia's breach-of-contract and negligence claims were not disposed of by the summary judgment. After this Court dismissed Saia Food and Saia's appeal, SecurityLink and ADT immediately served upon Saia Food and Saia an offer of judgment made in conformity with Rule 68, Ala. R. Civ. P. Saia Food and Saia did not respond to that offer of judgment, and SecurityLink and ADT moved to dismiss those claims for lack of subject-matter jurisdiction. The trial court granted their motion and dismissed those claims. Thus, the breach-of-contract and negligence claims were dismissed by the trial court for lack of subject-matter jurisdiction. We therefore do not address those claims under the standard of review applicable to a summary judgment. ADT and SecurityLink's motion to dismiss for lack of subject-matter jurisdiction was premised upon the enforceability of the limitation-of-liability provision. SecurityLink argued that Saia Food and Saia could not recover more than $5,800, plus costs accrued to the date of the offer of judgment, and that because they did not accept ADT and SecurityLink's offer of judgment, the trial court lost subject-matter jurisdiction over this controversy. We must determine whether the limitation-of-liability provision is valid in order to determine whether the trial court properly granted ADT and SecurityLink's motion to dismiss. We discuss this limitation-of-liability provision first. This Court has upheld a similar limitation-of-liability provision. In American District Telegraph Co. of Alabama v. Roberts & Son, Inc., 219 Ala. 595, 122 So. 837 (1929), this Court upheld a $50 limitation-of-liability clause found in a sprinkler-service contract. That clause provided: `It is agreed by and between the parties hereto that the Contractor is not an insurer, and that the rates hereinbefore are based solely on the value of the service in the operation of the system described, and in case of failure to perform such service and a resulting loss its liability hereunder shall be limited to and fixed at the sum of $50.00 as liquidated damages, and not as a penalty, and this liability shall be exclusive.' 219 Ala. at 598, 122 So. at 838. Without much explanation, the American District Telegraph Court found the provision enforceable and modified the trial court's judgment in favor of the plaintiff to award $50, in conformity with the language of the limitation-of-liability provision. [8] The case of Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44 (2d Cir.1993), provides additional explanation for upholding a limitation-of-liability provision. In Leon's Bakery, the United States Court of Appeals for the Second Circuit enforced a limitation-of-liability clause found in a contract between a fire-alarm-monitoring service and a bakery. The Second Circuit Court of Appeals stated: From all that the parties have cited to us and from all that our own research has unearthed, it appears that all of the courts that have considered the validity of limitation-of-liability clauses in contracts for the provisions of fire alarm systems have found those clauses to be permissible. See, e.g., Shaer Shoe Corp. v. Granite State Alarm, Inc., 110 N.H. 132, 262 A.2d 285, 286-87 (1970) (applying New Hampshire law and citing cases from Texas, California, and Alabama); Sommer v. Federal Signal Corp., 79 N.Y.2d 540, 553-54, 583 N.Y.S.2d 957, 962-63, 593 N.E.2d 1365, 1370-71 (1992), and cases cited therein (limitation-of-liability clauses in fire alarm contracts enforceable against claim of ordinary negligence, though not against claim of gross negligence); Abel Holding Co. v. American District Telegraph Co., 138 N.J.Super. 137, 145-54, 350 A.2d 292, 296-302 (Law Div.1975), aff'd, 147 N.J.Super. 263, 371 A.2d 111 (App.Div.1977). Apparently, a greater number of courts have been concerned with the enforceability of such clauses in contracts for the installation and servicing of burglar alarm systems, and those courts have similarly upheld clauses limiting liability for the failure of such systems, see, e.g., E.H. Ashley & Co. v. Wells Fargo Alarm Services, 907 F.2d 1274, 1278 (1st Cir.1990) (collecting cases from six states holding that contract clauses limiting liability of burglar alarm services were enforceable); Schrier v. Beltway Alarm Co., 73 Md.App. 281, 287-88, 533 A.2d 1316, 1319 (1987) (collecting cases from 14 jurisdictions so holding); St. Paul Fire & Marine Insurance Co. v. Guardian Alarm Co., 115 Mich.App. 278, 320 N.W.2d 244, 247 (1982); Colnaghi U.S.A., Ltd. v. Jewelers Protection Services, Ltd., 81 N.Y.2d 821, 595 N.Y.S.2d 381, 611 N.E.2d 282 (1993); Guthrie v. American Protection Industries, 160 Cal.App.3d 951, 954-55, 206 Cal.Rptr. 834, 836 (1984). See generally Annotation, Liability of Person Furnishing, Installing, or Servicing Burglar or Fire Alarm System for Burglary or Fire Loss, 37 A.L.R.4th 47, 89-97 (1985) .... The rationale for upholding an agreement between the purchaser and the manufacturer of an alarm system to limit the liability of the manufacturer is that `[m]ost persons, especially operators of business establishments, carry insurance for loss due to various types of crimes. Presumptively insurance companies who issue such policies base their premiums on their assessment of the value of the property and the vulnerability of the premises. No reasonable person could expect that the provider of an alarm service would, for a fee unrelated to the value of the property, undertake to provide an identical type coverage should the alarm fail to prevent the crime.' ... Even where the contract is not only for the sale and installation of a burglar alarm system but is also for its maintenance or monitoring, if the fee paid is not sufficiently high to include a premium for theft insurance, a clause limiting the alarm service company's liability in the event the alarm service does not function properly is not unconscionable. See, e.g., E.H. Ashley & Co. v. Wells Fargo Alarm Services, 907 F.2d at 1278-79 (not inappropriate for the parties to place on user the onus of `buy[ing] any desired amount of insurance at appropriate rates'). Though the events against which burglar alarms and fire alarms, respectively, are intended to provide protection differ somewhat, in that burglaries are always criminal interventions whereas fires may be either criminal or accidental, we think the rationale for permitting the provider of a burglar alarm system to limit its liability is equally applicable to the provider of a fire alarm system. The supplier of either type of system is paid for its equipment and services, and the price does not generally include a sum designed to anticipate the possible need to pay the purchaser the value of the property that the system is designed to protect. The owner or custodian of the property is in a far better position than the alarm system seller to know the property's value and to bargain with an insurance company for appropriate coverage and an appropriate premium, and, as the New York Court of Appeals noted, the alarm seller's `limitations on liability help keep alarm services affordable....' 990 F.2d at 48-49 (citations omitted). See also D.L. Lee & Sons, Inc. v. ADT Sec. Sys., Mid-South, Inc., 916 F.Supp. 1571 (S.D.Ga.1995) (relying heavily on Leon's Bakery, supra, to enforce a limitation-of-liability provision in an ADT contract similar to the provision contained in the SecurityLink contract). We agree that an installer of security equipment or a supplier of fire- or security-monitoring services does not become an insurer of the property it is designed to help safeguard. Construing a security-equipment or security-monitoring contract as an insurance policy would render such a contract cost prohibitive. In fact, SecurityLink's contract, which Saia executed on behalf of Saia Food, expressly recognized this: [T]he Company [SecurityLink] is not an insurer, nor is this Agreement intended to be an insurance policy or a substitute for an insurance policy. SecurityLink's contract limits its damages to, in this case, the costs of the equipment Saia Food purchased from SecurityLink. Finally, the contract specifically offered Saia Food the option of increasing SecurityLink's liability exposure by paying additional charges commensurate with the risk Saia Food wished SecurityLink to assume. (In the event that [Saia Food] desires [SecurityLink] to assume greater liability under this agreement, a choice is hereby given of obtaining full or limited liability by paying an additional amount in proportion to the amount of liability [SecurityLink] will assume. If this option is chosen, an additional rider shall be attached to this Agreement setting forth the additional liability of [SecurityLink] and the additional charge.) Saia Food did not select this option. Saia Food and Saia argue that this Court should hold unenforceable the limitation-of-liability provision in Saia Food's contract with SecurityLink. They argue that the facts of American District Telegraph, supra, are distinguishable from those presented in this case. However, we find nothing in this case that compels us to reach a result different from the result this Court reached in American District Telegraph. Saia Food and Saia also argue that, if we uphold the limitation-of-liability provision, we are allowing SecurityLink to limit its liability for negligence in the performance of the very duties it assumed under the contract. Saia Food and Saia argue that this is not permitted under the holding of American District Telegraph, 219 Ala. at 599, 122 So. at 840 (This Court is committed to the doctrine that, where parties enter into a relation carrying a legal duty, while one may limit the scope of his duties, he cannot stipulate for protection against negligence in the performance of the duties he does assume.). We disagree with the interpretation Saia Food and Saia give to American District Telegraph. SecurityLink specifically agreed that it would provide monitoring services for Klub 280. However, Saia Food's contract with SecurityLink also specifically provided: If [SecurityLink] should be found liable for loss or damage due to a failure on the part of [SecurityLink] or the System or services, in any respect, such liability shall be limited... solely with respect to a DIRECT SALE transaction, to an amount equal to the purchase price of the equipment with respect to which the claim is made, and regardless of the type of transaction, this liability shall be exclusive. The provisions of this paragraph shall apply in the event loss or damage, irrespective of cause or origin, results directly or indirectly to person or property from the performance or nonperformance of the obligations set forth by the terms of this Agreement or from the active or passive negligence of [SecurityLink], its agents or employees. (Capitalization in original.) We do not interpret this language as allowing SecurityLink to escape all liability for any breach of its contract with Saia Food or for SecurityLink's negligence, if any. SecurityLink and Saia Food merely agreed to limit the amount of damages for which SecurityLink could be held responsible. The parties' agreement to limit SecurityLink's exposure is enforceable. The trial court did not err in finding that the limitation-of-liability provision of the contract between SecurityLink and Saia Food was enforceable. Because we find that the limitation-of-liability provision is enforceable, we next address whether the trial court properly granted ADT and SecurityLink's motion to dismiss for lack of subject-matter jurisdiction based on Saia Food and Saia's failure to respond to the offer of judgment made by ADT and SecurityLink.