What do contract provisions limiting liability and damages really mean?

file000220042365Those  of you who deal with  end-users  of alarm  products have contracts with your  customers  that contain provisions limiting your  company’s  liability and  limiting the  damages  recoverable  from  your  company.  But  what  do  those contract provisions really mean? 

Here is an example  of a contract provision limiting liability:

Customer agrees that Company is not liable for any loss, damage, injury or other consequences arising from the services we perform or the systems  we provide or the performance of the Company’s duties under this agreement.

Hand-in-hand with the limitation of liability provision, alarm contracts usually contain a limitation of damages provision. Here is an example of a contract provision limiting damages:

If any liability is imposed on Company, it will be limited to six times the monitoring charge provided in this agreement or five hundred dollars ($500.00), whichever is more.

This language is pretty self-explanatory—if the company is held liable for negligence, it agrees to pay the greater of $500 or six times the monitoring charge.

Importantly, these provisions do not  mean  the  company cannot be held liable for anything it does or that any damages will necessarily be limited. Rather, courts interpret these provision to mean  that  the company will not  be liable and damages will be limited if it is negligent, which  is legally defined  as the  failure  to act with  reasonable care, or as an ordinary prudent person  would  act under the circumstances.

Courts  have held  that  the  company  will  still  be liable  for  willful acts, and in some jurisdictions gross negligence.  This conduct is typically  defined  as a reckless disregard for the safety or property of another, or not  paying any attention to the consequences or using no care at all. Courts  have determined it is against  public policy to exculpate yourself from these types of actions.

As a result, these contract provisions might deter a lot of otherwise frivolous lawsuits, but  it is not  an absolute  shield.  And whether conduct  is negligent versus willful or grossly negligent is often litigated.

In court decisions the distinction between what is negligence and what is willful or gross negligence can be as clear as mud. Here are some examples from alarm cases where conduct was found to be merely  negligent, meaning the company was not  liable under  its contract provision:

  • • Alarm company employee ignored  burglary  signals, believing it was an equipment malfunction.
  • Alarm  company   received  panic  signal  and  gave police  the wrong business name, causing police to be unable to find the business where an employee had been shot.
  • Alarm company  called the  wrong  fire department and failed to give directions to home.

Unfortunately, however, there are numerous examples of similar conduct where the court deemed it to be willful or grossly negligent.  In the end, whether conduct is deemed negligent versus willful or grossly negligent depends on the specific facts involved, including whether the employee acted reasonably and diligently, and whether the employee followed company policy and procedure, and any applicable laws.

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