Opinion ID: 2618299
Heading Depth: 2
Heading Rank: 1

Heading: nevada bell's limited liability.

Text: Bulbman contends that Tariff No. A2's limitation on liability does not apply to Nevada Bell's Centrex system because the system is a competitive product. In support of this contention, Bulbman cites the March 1988, decision of the Nevada Public Service Commission (Docket 87-371) exempting the system from tariff regulation. This argument lacks merit. First, Bulbman purchased and installed Centrex in October of 1986 and Nevada Bell did not apply to the Public Service Commission to have its Centrex product exempted from tariff until March of 1987. It was not until March of 1988 that the Public Service Commission entered its order directing that Nevada Bell's Centrex be exempted from tariff. Thus, when Bulbman purchased and installed its Centrex system, Nevada Bell operated under the Public Service Commission's tariffs, including Tariff No. A2. Furthermore, Bulbman misunderstands the exemption from tariff granted Nevada Bell in March of 1988. Under NRS 704.040(3), the Public Service Commission is authorized to exempt to the extent it deems reasonable any services of a telecommunication or public utility from any or all of the provisions [governing the regulation of public utilities] upon a determination that the services are competitive and that further regulation is unnecessary. Pursuant to this statute, the Public Service Commission exempted Nevada Bell's Centrex from tariff regulation as to pricing so as to allow Centrex to compete in a competitive market. The Public Service Commission did not remove the system from the coverage of Tariff No. A2. Tariff No. A9, which describes the tariff exemption granted to Nevada Bell in March of 1988, expressly states that Tariff No. A2 is incorporated by reference as applicable to the provisioning of those services [Centrex] exempt from tariff by Docket 87-371. We hold that Tariff No. A2's liability limitation applies to the Centrex system purchased by Bulbman. Tariff No. A2 provides in relevant part: The liability, if any, of the Utility arising out of or in any way connected with any defect, error, omission, delay, interruption, suspension or other failure in connection with furnishing service or facilities shall, unless otherwise provided in the tariff schedules, be in an amount not in excess of the charge for the service or facility involved for the period during which the defect, error, omission, delay, interruption, suspension or other failure continues. The trial court found this tariff to be valid and enforceable as to Bulbman's breach of warranty and breach of contract claims. In doing so, the trial court adopted the position held by most jurisdictions; namely, upholding validly promulgated provisions of Public Service Commission tariffs and holding that the liability limitations contained in such tariffs apply to claims for simple negligence and breach of contract. See, e.g., Waters v. Pacific Telephone Company, 12 Cal.3d 1, 114 Cal. Rptr. 753, 523 P.2d 1161 (1974). Also consistent with this majority view is the trial court's conclusion that tariff liability protection should not be accorded to willful, wanton conduct or gross negligence. Thus Tariff No. A2 does not apply to Bulbman's fraud claim, and Nevada Bell concedes as much. Confronting this issue for the first time, we concur in the trial court's decision. As Nevada Bell observes, absent liability limitations such as that contained in Tariff No. A2, the broad liability exposure faced by utilities would create tremendous upward pressure on utility service rates. For example, although Bulbman's claim concerns a minor defect in telephone equipment, Bulbman claims to have suffered over $730,000 in damages from the disruption in its telephone service. Defects and disruptions are inevitable when providing service to hundreds of thousands of customers. If Nevada Bell were to be found liable for similar business losses arising out of every telephone disruption, the potential liability would be enormous. As a result, utilities would be forced to raise rates to cover the increased costs of providing service. In Waters, the plaintiff claimed that Pacific Telephone had, among other things, improperly installed the telephone system, furnished inadequate telephone service, removed phones without authorization and failed to provide maintenance. The plaintiff sought an award of damages in the amount of $750,000. Id. 114 Cal. Rptr. at 755, 523 P.2d at 1163. In affirming summary judgment in favor of Pacific Telephone, the California Supreme Court held that the public service commission has broad supervisory and regulatory powers, that the limitation of liability is a proper subject of regulation and supervision and that the commission had properly approved the liability limiting tariff. Id. 114 Cal. Rptr. at 755-759, 523 P.2d at 1163-1167. In explaining the public policy considerations that support enforcement of liability limiting tariffs, the court stated: The theory underlying [enforcement of liability limitations] is that a public utility, being strictly regulated in all operations with considerable curtailment of its rights and privileges, shall likewise be regulated and limited as to its liabilities. In consideration of its being peculiarly the subject of state control, `its liability is and should be defined and limited.' [citation omitted] There is nothing harsh or inequitable in upholding such a limitation of liability when it is thus considered that the rates as fixed by the commission are established with the rule of limitation in mind. Reasonable rates are in part dependent upon such a rule. Id., 114 Cal. Rptr. at 756, 523 P.2d at 1164 (quoting Cole v. Pacific Tel. & Tel. Co., 112 Cal. App.2d 416, 246 P.2d 686, 688 (1952)). We find the Waters rationale persuasive and therefore affirm the trial court's endorsement of this majority view. [1]