What do contract provisions limiting liability and damages really mean?
- February 27th, 2013
- Wendy Carlisle
- Comments Off on What do contract provisions limiting liability and damages really mean?
Those 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.