Does your alarm or security services contract contain a provision that limits the time a customer has to file suit against you? If not, maybe it should. Some courts have enforced such provisions favorably for the alarm and security services industry, thus providing yet another important tool to include in your company’s contract.
In Nickens v. Tyco Integrated Sec. LLC, plaintiff Larry Nickens, purchased a burglar residential alarm system from ADT LLC, f/k/a ADT Security Services Inc. He alleged that, in Oct. 2011, the alarm activated for no apparent reason and emitted a sound so loud that, by the time he was able to disarm the system, he had sustained permanent damage to his hearing. The plaintiff asserted claims for common law negligence and claims under the Indiana Products Liability Act (IPLA). In particular, Count I alleged that ADT negligently advised Nickens to expose himself to the sound of the alarm, causing him personal injury. Count II alleged ADT failed to warn the public and the plaintiff of the health risks arising from exposure to the alarm sound, and failed to provide proper training concerning the safe and effective use of the alarm. Count III alleged that the burglar alarm was defective in its design, rendering it unreasonably dangerous to the average consumer; and Count IV alleged a breach of the implied warranty of merchantability under the IPLA — i.e., the burglar alarm was not reasonably fit for the ordinary purposes for which such goods are used, nor minimally safe for its intended purpose.
ADT filed a motion to dismiss, arguing in part that the plaintiff’s claims were barred because he did not bring his claims within one year of the incident, as required by the contract. The limitations period set forth in the contract, read as follows: “You agree to file any lawsuit...you may have against us...within one year from the date of the event that resulted in the loss, injury, damage or liability, or the shortest duration permitted under applicable law if such period is greater than one year.”
The court initially denied ADT’s motion, but upon ADT’s motion to reconsider, granted the motion to dismiss — finding the provision was enforceable and would have been superfluous and meaningless had the court’s initial interpretation — that the provision was either one year from the date of the event that resulted in a loss or the shortest period which is permitted under Indiana law — been given. Note that it appears Indiana law would have viewed this case differently had the plaintiff not been a signatory to the contract. See Young v. Tri-Etch, Inc., in which the Indiana Supreme Court reversed a trial court’s dismissal of a wrongful death action filed by the estate of a liquor store employee, due to the fact it was not filed within the one-year time limitation. The court found that since the employee was not a party to the alarm contract and never consented to the terms of the contract, the contract did not impose any obligations or limitations on him.
Corbett vs. Firstline
Similarly, the United States District Court, applying New York law, also upheld a similar shortened limitation period in Corbett v. Firstline Sec., Inc. In Corbett, the plaintiff customer had signed a contract with an independent “Authorized Dealer of ADT Security Services Inc.” which advised that “upon finalization of your contract, it will be submitted to ADT Security Services, Inc. for approval and purchase of the monitoring of your system.” Further, the contract stated ADT would only notify the customer if it chose to reject or not purchase the contract. The customer’s home was burglarized and suit was filed more than a year after the burglary. ADT moved for summary judgment asserting the contractual provision, which read as follows: “You agree to file any lawsuit or other action you may have against us or our assignees...within one year from the date of the event that caused the loss, damage or liability.
The plaintiff’s complaint alleged theories of negligence and gross negligence, breach of express and implied warranties, breach of contract, products liability based on design and manufacturing defects, and breach of the duty of care. ADT moved for summary judgment on all of these claims on the ground that the plaintiffs did not file suit within the one-year statute of limitations provided in the Alarm Services Contract.
The court found that New York courts have enforced contract provisions shortening the limitations period for bringing any claim against a party, including claims that sound in tort. The Corbett court then looked to whether the shortened period of limitations was conscionable. The court noted that a one-year period of limitations in alarm service contracts have been held to be reasonable even in a contract of adhesion; thus, the court found the issue was whether the Alarm Services Agreement would “sufficiently alert” a consumer to the shortened limitations period. The court noted the relevant contractual provision was on the second page of the contract in capital letters and the paragraph was referenced on the first page of the contract. Further, the court stated the provision was written primarily in language understandable to a non-lawyer, and was not so small as to be difficult to read. The court determined that the provision would “sufficiently alert” a consumer to the shortened limitation period with respect to the authorized dealer.
The court then looked at whether the contract sufficiently alerted the consumer that this provision also applied to ADT. The court noted that the term “assignee” was a legal term of art and an unrepresented consumer would not necessarily understand the import of this language; however, the court found that the contract, taken as a whole, would sufficiently alert a reasonable consumer that the limitations period applied to ADT because ADT’s insignia appeared at the top left corner of the contract, ADT’s name appeared throughout the contract, and the contract contained language explaining that the contract and the services would be transferred to ADT. Thus, the court upheld the contractual one year limitation period and granted ADT’s motion for summary judgment.
Contract terms and provisions are interpreted differently by courts, but suit limitation provisions should be included in alarm contracts where business is performed in states where the courts enforce the provisions. In such states, suit limitation provisions provide alarm companies with an important risk mitigation tool that should not be overlooked.
Philip R. Kujawa is a partner in the law firm Hinshaw & Culbertson LLP. For more information, email [email protected]. Megan L. Zust is a partner in the law firm Hinshaw & Culbertson LLP. For more information, contact her at (312) 704-3468 or via email at [email protected].
