Manix v. Commonwealth Security Systems Inc.

no. 7

COMMON PLEAS COURT OF LANCASTER COUNTY, PENNSYLVANIA

43 Pa. D. & C.3d 587; 1986 Pa. D. & C. LEXIS 166


December 18, 1986, Decided



CASE SUMMARY

PROCEDURAL POSTURE: Defendant security company filed a motion for summary
judgment in a subrogation claim by plaintiffs, a battery company, its
president, and his wife, for alleged negligence and breach of contract.


OVERVIEW: The battery company contracted with the security company to
install a security system at the home of the president and his wife. After
the system was installed, the residence was burglarized and insurance
covered the loss. The court granted summary judgment to the security company
as against the battery company. The battery company suffered no loss
whatsoever and was at best a nominal party. The court granted partial
summary judgment to the security company as against the president and his
wife. Even assuming that the president and his wife were entitled to go to a
jury on the question of causation, the doctrine of equitable subrogation
would require the entry of judgment in the security company's favor. The
insurer, which charged its premiums based on the extent of insurance
coverage, was in the best position to spread the risks assumed. Also, the
contract between the battery company and the security company, of which the
president and his wife were third-party beneficiaries, contained an express
limitation of damages to repayment of any fees and costs received.


OUTCOME: The court granted partial summary judgment in favor of the security
company, limiting the damages recoverable by the president and his wife to
the fees and costs received by the security company. The court granted
summary judgment in favor of the security company and against the battery
company.

COUNSEL: [**1] Eugene A. Luciw and Christopher S. Underhill, for
plaintiff.

B. Christopher Lee, for Commonwealth Security Systems Inc.

William E. Haggerty, for defendant.

JUDGES: PEREZOUS, J.

OPINIONBY: PEREZOUS

OPINION: Motion for summary judgment.

[*588] In 1979, Lancaster Battery Co. Inc. (hereinafter Company)
contracted with Commonwealth Security Systems Inc. (hereinafter
Commonwealth) to have the latter install a burglar alarm system at the
residence of Company's president, Stuart C. Manix and his wife, Sally S.
Manix (hereinafter Manix). The residence was burglarized on September 4,
1981, and insurance covered a loss of $ 61,607.85. Company and Manix brought
this subrogation claim against Commonwealth for alleged negligence and
breach of contract.

The alarm system installed by Commonwealth included magnetic door contacts
and a self-contained ultrasonic detection unit, together with a back-up
battery system. Evidently, entry was made through a cellar door by breaking
a pane of glass and opening the latch from the inside after the alarm
system's "umbilical cord" which had been placed outside the walls of the
house was cut, rendering it inoperative. Before the court is Commonwealth's
[**2] motionfor summary judgment which has been ably briefed by both
parties.

Summary judgment is made available by Pa.R.C.P. 1035 when the pleadings,
depositions, [*589] answers to interrogatories, admissions on file and
supporting affidavits considered together reveal no genuine issue as to any
material fact and the moving party is entitled to a judgment as a matter of
law. This severe disposition should be granted only in cases where the right
is clear and free from doubt. To determine the absence of genuine issue of
fact, the court must take the view of the evidence most favorable to the
nonmoving party and any doubts must be resolved against the entry of the
judgment. Badami v. Dimson, 226 Pa. Super. 75, 310 A.2d 298 (1973); Husak v.
Berkel Inc., 234 Pa. Super. 452, 341 A.2d 174 (1975). The moving party has
the burden of submitting evidence clearly dispelling the existence of a
genuine factual issue. First Mortgage Company of Pennsylvania v. McCall, 313
Pa. Super. 54, 459 A.2d 406 (1983).

With these principles in mind the issues can be defined as follows:

Whether Lancaster Battery, as principal contracting party under a contract
[**3] designedto benefit its chief executive officer, Stuart Manix, and his
wife, Sally, as third-party beneficiaries, may maintain a cause of action
against Commonwealth as defaulting party under that agreement;

Whether, as a matter of law, negligence, gross negligence and/or breach of a
contractual duty on the part of a burglar alarm company with respect to its
installation of a burglar alarm system can be the proximate cause of
burglary losses sustained when the equipment fails to work or is deactivated
as a consequence of such misfeasance;

Whether an insurer who pays a burglary loss can subrogate to the claims of
its insured against a burglar alarm company which tortiously caused the
loss; and,

[*590] Whether the limitation-of-liability clause embodied in the contract
at issue precludes plaintiffs from maintaining a cause of action for
breaches of contract which rise to the level of negligence and/or gross
negligence.

The first issue can be put at rest promptly by granting summary judgment
against Company since it sustained no loss whatsoever and is at best a
nominal party, with the real parties in interest being Manix, under a
classic third-party beneficiary [**4] contract. n1

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -


n1 Alarm Device Manufacturing Company, the other defendant, is alleged in
company's answer to have had nothing to do with any of the components of the
alarm system installed for Manix.




- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -The second
issue appears to have been answered in the case of Nirdlinger v. American
District Telegraph Company, 245 Pa. 453, 91 Atl. 883 (1914) where our
Supreme Court held the negligence of the supplier of a burglar alarm system
could not be the proximate or legal cause of plaintiff's loss due to a
burglary. It is worthy of mention that an alarm system, per se, does not
prevent a burglary but rather merely gives notice of the unauthorized entry.
There is no indication that a properly installed and functioning alarm
system would have stopped the criminal act in the case at bar. While
Commonwealth may have been negligent in performance of its contractual
duties or in breach thereof, such negligence did not cause the loss. The
burglar(s) caused the loss. Cf. Trexler Orchards Inc. v. Altronics, Inc., 51
D. & C. 2d 79 (1970). [**5]

Notwithstanding Nirdlinger, however, there are indications that the
Pennsylvania law of proximate causation and intervening causes has not
remained static since 1914. Indeed, Trexler Orchards may be [*591]
outdated in view of subsequent case law such as Hamil v. Bashline, 481 Pa.
256, 392 A.2d 1280 (1978), wherein the Supreme Court clarified the concept
of proximate causation in adopting the Restatement (Second) of Torts
standard (§ 448). See Douglas W. Randall Inc. v. AFA Protective Systems
Inc., 516 F. Supp. 1122 (E.D., Pa. 1981). Furthermore, a survey of recent
similar cases shows a growing number of jurisdictions allowing for alarm
company liability upon a finding that negligent installation of an alarm
system was a proximate cause of burglary losses. Cf. 37 A.L.R. 4th 47 with
165 A.L.R. 1254.

Because of the disposition of the subsequent issues in this case, our
refusal to deny Commonwealth's motion on this ground would not rescue Manix'
cause of action from an adverse summary determination.

Turning to the third issue here posed, it is the considered view of this
court that, even assuming arguendo plaintiffsare [**6] entitled to go to a
jury on the question of causation, the doctrine of equitable subrogation
would require the entry of judgment in Commonwealth's favor. Manix' losses
were covered by an insurance policy issued by Continental Insurance Group,
which is seeking to recover its indemnity payment through this subrogation
action.

The doctrine of subrogation is based "on consideration of equity and good
conscience... to promote justice... (and) is granted as a means of placing
the ultimate burden of the debt upon the person who should bear it." Gildner
v. First National Bank & Trust Co. of Bethlehem, 342 Pa. 145, 157, 19 A.2d
910, 915 (1941). Subrogation rests upon purely equitable grounds, and it
will not be enforced against superior equities. Id. Subrogation exists
wholly apart from contractual provision and, in any [*592] instance, is to
be enforced equitably. Roberts v. Fireman's Insurance Company of Newark,
N.J., 376 Pa. 99, 107 A.2d 747 (1954).

As was stated in a California case holding that subrogation claims brought
by insurers of alarm company customers are not permissible as a matter of
law:

[**7] "Subrogation is equity's second methodof compelling the ultimate
payment by one who in justice and good conscience ought to make it -- of
putting the charge where it justly belongs. (Citation.) It is not an
absolute right, but depends upon the superiority of the equities of him who
asserts it over those of the one against whom it is sought. It will never be
enforced when the equities are equal or the rights not clear." ( Meyers v.
Bank of America, etc. Association, 11 Cal. 2nd 92, 101 (1938)). Fireman's
Fund Insurance Company v. Morse Signal Devices, 198 Cal.Rptr. 756, at 758
(1984).

Only if the person dealing with the wrongdoer is in a better position to
avoid the loss than is the insured or the surety does the surety have the
superior equity permitting it to recover as subrogee. The insurance company,
which charges its premiums based on the extent of insurance coverage, is in
the best position to spread the risks assumed. Fireman's Fund, supra, at
759.

Nor does the case of Employers Mutual Liability Insurance Company of
Wisconsin v. Melcher, 378 Pa. 598 107 A.2d 874 (1954), offer Manix any
relief as it is inapposite in [**8] that it deals with the principles of
contractualindemnification rather than the right of equitable subrogation
asserted by Commonwealth in the case at hand.

The last issue concerning the limitation-of-liability clause embodied in the
present contract at issue remains to be addressed. Since the Manixes are
[*593] third-party beneficiaries of this contract, they are bound by its
terms. Notwithstanding any finding of liability on the part of Commonwealth,
therefore, there is an express limitation of damages to repayment of any
fees and costs received.

In this court's judgment, Commonwealth expressly and explicitly set forth in
the contract that it is not an insurer and is not responsible for any loss
or damage sustained beyond repayment of fees and costs received. Under the
rationale of Lobianco v. Property Protection Inc., 292 Pa. Super. 346, 437
A.2d 417 (1981), such a clause in security alarm contracts limiting
liability is valid and enforceable.

Insofar as Company's contention that an exculpatory clause must be construed
strictly against the party asserting it, such language should be viewed from
the broader perspective that [**9] while "rules of construction serve the
legitimate purpose of aiding courtsin their quest to ascertain and give
effect to the intention of the parties to an instrument they are not meant
to be applied as a substitute for that quest." Burns Manufacturing Co. Inc.
v. Boehm, 467 Pa. 307, 313 n.3, 356 A.2d 763, 766 (1976). Such a bright line
rule (strict construction without more) is directly contrary to Zimmer v.
Mitchell and Ness, 253 Pa. Super. 474, 385 A.2d 437 (1978), which held the
lack of the term "negligence... not fatal." Zimmer involved an injury
resulting from the rental of ski equipment where the rental agreement
released defendant from "any liability" where the court noted that this
included negligence, further opining that all contracts should be read "as a
whole" and "with common sense." Id., pp. 478-479.

Moreover, exculpation from claims arising out of negligence, as well as
contract, is permitted. See Wedner v. Fidelity Security Systems Inc., 228
Pa. Super. 67, 307 A.2d 429 (1973) -- affirmance by an [*594] equally
divided court -- cited in Lobianco, supra, at 352. Furthermore, cases from a
host of [**10] other jurisdictions have considered attempts to avoid
exculpatory/limitationof liability/liquidated damages clauses on various
grounds -- that such clauses: are against public policy per se or because a
central station alarm industry contract affects the public interest; or, are
unconscionable and amount to contracts of adhesion because of a disparity in
bargaining power; or, amount to a penalty and are unenforceable -- all of
which contentions have been uniformly rejected.

As to Manix' remaining argument that the disclaimer at issue does not
insulate Commonwealth from a claim of gross negligence, this averment in the
complaint is nothing more than a rephrasing of a description of ordinary
negligence and does not approach the reckless-disregard-of-consequences
standard that would justify a presumption of willfulness or wantonness. n2

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -


n2 A limitation-of-liability provision has been rendered inapplicable by one
court on a finding of gross negligence where an alarm company employee had
turned down the sensitivity level of the alarm to a point at which it could
not detect the entry of a person into the customer's store. Douglas W.
Randall Inc., supra.


- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**11]

As a general rule, Pennsylvania law recognizes liability based on differing
standards of care, not differing degrees of negligence, Ferrick Excavating
and Grading Co. v. Senger Trucking Co., 506 Pa. 181, 484 A.2d 744 (1984),
and in the instant case that standard was defined by the contract. Raab v.
Keystone Insurance Co., 271 Pa. Super. 185, 412 A.2d 638 (1979). Thus,
conceptually, gross negligence has had sparing uses. Martz v. New Oxford
Community Fire Co. Inc. 17 Adams 95 (1976) (exception to Good Samaritan
Statute); Williams v. [*595] Civil Service Commission, 9 Pa. Commw. 437,
306 A.2d 419 (1973), (basis for civil servant dismissal); Kasanovich v.
George, 348 Pa. 199, 34 A.2d 523 (1943) (exception to defense of
contributory negligence).

Consequently, the above rationale points to these conclusions:

"An alarm system installer has no liability pursuant to an exculpatory
clause; perhaps there should be liability if the system was installed
improperly but, such liability would be limited under the terms of the
contract."

Although not essential to the disposition of Commonwealth's motion in light
of theabove [**12] discussion and the subsequent order, this court feels
constrained to point out yet another possible reason for a similar result
even though it was not raised in the motion for summary relief. The contract
in question also contains a warranty by Commonwealth of the proper
mechanical functioning of all equipment for a period of one year.
Commonwealth's new matter avers that the alarm system was installed on or
about January 22, 1979. According to the contract, payment was to be
accomplished by a down payment with an equal amount due (15) days after
installation. These facts would lead inalterably to the conclusion that the
alarm system was out of warranty at the time of the burglary and thus
Commonwealth was not liable.

Nevertheless, for the reasons previously discussed, the court enters
judgment as per the ensuing

ORDER

And now, December 18, 1986, upon consideration of defendant's, Commonwealth
Security Systems Inc., motion for summary judgment and defendant's [*596]
memorandum of law and reply brief, together with plaintiffs' legal brief in
opposition thereto, and for the reasoning postulated in the opinion
accompanying this order, partial summary judgmentis [**13] granted in favor
of defendant, Commonwealth Security Systems Inc., limiting the damages
recoverable by plaintiffs, Stuart C. Manix and Sally S. Manix, to the fees
and costs received by such defendant and, summary judgment is entered in
favor of Commonwealth Security Systems Inc., and against plaintiff,
Lancaster Battery Co. Inc.