Contract Clause Limits Security Monitoring Company's Liability

A court of appeals ruled that a clause limiting a security monitoring company's liability to $500 is enforceable because the company was not grossly negligent in assuming an alarm was false and failing to summon the police.

S&M Golden hired Alarm Management to provide security monitoring services at its grocery store. The hiring agreement included a clause that limited the alarm company's liability to $500.

At 4:53 a.m. on June 22, 2004, the security system at the store detected an unauthorized entry. The security company dispatched police, and the police found no signs of forced entry. The security company operator determined that the signal was a false alarm.

The following night, the alarm sounded again. The security company operator determined that this was also a false alarm and did not call the police or the store's representative. The next day, store employees discovered that the store had been burglarized. The store suffered $60,000 in damages.

The store sued the security company to recover the $60,000 in damages. The store argued that the $500 limitation clause was unenforceable because the security company was grossly negligent. The trial court dismissed the store's claims, finding it did not provide evidence of gross negligence.

Security companies may limit their liability for ordinary negligence through a clause in the contract to provide security services. However, a security company may not limit its liability for extreme negligence.

The court of appeals ruled that the store failed to show the security company was grossly and extremely negligent in concluding that the alarm was false because it was a one-time event, and no evidence existed that such an action was habitual. Thus, the court found that the clause limiting the security company's liability was enforceable and affirmed the trial court's decision.

This case illustrates the general rule that a security company may limit its liability for negligent monitoring in a contract, but may not limit its liability for extreme or gross negligence. When a security company makes the mistake of assuming an alarm is false only one time, the security company is negligent but it is not extremely negligent.

Source: Security Law Newsletter, 03/01/2006