PING: Bitacle Blog Search Archive – Limitation on Liability: Burning Down the HouseURL: http://en.bitacle.org/blogs/viewblog/y4ziv8b30/873IP: 212.22.59.251BLOG NAME: bitacle.orgDATE: 09/20/2006 01:52:09 AM[…] Plaintiffs equipped their home in Lexington, Kentucky, with an ADT fire alarm system. […]

Plaintiffs equipped their home in Lexington, Kentucky,with an ADT fire alarm system. ADT retained title to the alarm system and provided a monitoring service in return for a monthly fee.  Plaintiffs’ house was destroyed by an accidentalfire. The alarm malfunctioned and failedto inform the local fire department of the fire. Plaintiffs’ contract with ADT contained thefollowing clause limiting ADT’s liability to $250 as liquidated damages in theevent of an equipment malfunction:

LIMIT OF LIABILITY–IT ISUNDERSTOOD THAT ADT IS NOT AN INSURER, THAT INSURANCE, IF ANY SHALL BE OBTAINEDBY THE CUSTOMER AND THAT THE AMOUNTS PAYABLE TO ADT HEREUNDER ARE BASED UPONTHE VALUE OF THE SERVICES AND THE SCOPE OF LIABILITY AS HEREIN SET FORTH ANDARE UNRELATED TO THE VALUE OF THE CUSTOMER’S PREMISES. ADT MAKES NO GUARANTY ORWARRANTY, INCLUDING ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS THAT THESYSTEM OR SERVICES SUPPLIED, WILL AVERT OR PREVENT OCCURRENCES OR THECONSEQUENCES THEREFROM, WHICH THE SYSTEM OR SERVICE IS DESIGNED TO DETECT. ITIS IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES, IF ANY, WHICHMAY PROXIMATELY RESULT FROM FAILURE ON THE PART OF ADT TO PERFORM ANY OF ITSOBLIGATIONS HEREUNDER. THE CUSTOMER DOES NOT DESIRE THIS CONTRACT TO PROVIDEFOR FULL LIABILITY OF ADT AND AGREES THAT ADT SHALL BEEXEMPT FROM LIABILITY FOR LOSS, DAMAGE, OR INJURY DUE DIRECTLY OR INDIRECTLY TOOCCURRENCES OR CONSEQUENCES THEREFROM, WHICH THE SERVICE OR SYSTEM IS DESIGNEDTO DETECT OR AVERT; THAT IF ADT SHOULD BE FOUND LIABLE FOR LOSS, DAMAGE ORINJURY DUE TO A FAILURE OF SERVICE OR EQUIPMENT IN ANY RESPECT, ITS LIABILITYSHALL BE LIMITED TO A SUM EQUAL TO 10 OF THE ANNUAL SERVICE CHARGE OR $250,WHICHEVER IS GREATER, AS THE AGREED UPON DAMAGES AND NOT AS A PENALTY, AS THEEXCLUSIVE REMEDY, AND THAT THE PROVISIONS OF THIS PARAGRAPH SHALL APPLY IFLOSS, DAMAGE OR INJURY IRRESPECTIVE OF CAUSE OR ORIGIN, RESULTS DIRECTLY ORINDIRECTLY TO PERSON OR PROPERTY FROM PERFORMANCE OR NONPERFORMANCE OFOBLIGATIONS IMPOSED BY THIS CONTRACT OR FROM NEGLIGENCE, ACTIVE OR OTHERWISE,OF ADT, ITS AGENTS OR EMPLOYEES….

Plaintiffs argued that thelimitation of ADT’s liability should not be enforced. First, they contended that the contract forthe alarm service was one of adhesion. The court disagreed because the contract, while a standardized form, wasnot a “take-it-or-leave-it” proposal. Rather, the contract provided that plaintiffs could pay ADT more toassume a greater liability – the plaintiffs, thus, could have bargained for morefavorable terms.

Plaintiffs next argued that thecontract was unconscionable. The courtalso rejected this contention, holding that the limitation-of-liability clause was not one-sided, oppressive nor unfairly surprising. While the language of the clause was locatedon the back of the contract document, and plaintiff signed on the bottom frontof the document, near the signature block, the contract stated in bold, capitalletters:

ATTENTION IS DIRECTEDTO THE LIMITED WARRANTY, LIMIT OF LIABILITY AND OTHER CONDITIONS ON REVERSESIDE.

The court noted that the languagestood separate and apart from the rest of the paragraphs of the contract andwas easily readable, not unduly lengthy and not couched in vague or obscure language. The court also noted that one of the plaintiffswas a “highly educated medical doctor” who read the document before signing it.

Plaintiffs also argued that the limitation ofADT’s liability was an unenforceable penalty. The court disagreed and enforced the liquidated damages clause:

Damages based on a breach of thecontract by [ADT] would have been difficult, if not impossible, toascertain because they did not contract to assume the duties of an insurer anddid not know the value of the home, its contents, or the extent of any possiblefire damage that might result. Additionally, the $250.00 limitation ofliability amount represents nearly one year of monitoring fees and isreasonably proportionate to the damages expected from a breach of a $24.00 permonth monitoring agreement. Accordingly, we hold that the $250.00 contemplated under the agreement is a proper measure of liquated damagesand does not constitute an unenforceable penalty.

United Services Auto. Ass’n v. ADT Sec. Services, ___ S.W.3d ___, 2006 WL 2578019 (Ky. App
Sep. 8, 2006).

[Meredith R. Miller]