Core-Mark Midcontinent, Inc. v. Sonitrol Corp.

• Decision Date: 19 July 2012
• Docket Number: Nos. 10CA2289,11CA0369.,s. 10CA2289
• Citation: 300 P.3d 963
• Parties: CORE–MARK MIDCONTINENT, INC.; Core–Mark International, Inc.; United States Fire Insurance Company; and Commonwealth Insurance Company, Plaintiffs–Appellees, v. SONITROL CORPORATION, Defendant–Appellant.
• Court: Colorado Court of Appeals

300 P.3d 963

CORE–MARK MIDCONTINENT, INC.; Core–Mark International, Inc.; United States Fire Insurance Company; and Commonwealth Insurance Company, Plaintiffs–Appellees,

v.SONITROL CORPORATION, Defendant–Appellant.

Nos. 10CA2289, 11CA0369.

Colorado Court of Appeals, Div. I.

July 19, 2012.

Davis Graham & Stubbs LLP, Andrew M. Low, Kyle W. Brenton, Denver, Colorado, for Plaintiffs–Appellees.

Sander, Ingebretsen, & Wake, P.C., Richard G. Sander, S. Kirk Ingebretsen, Christopher Noecker, Denver, Colorado, for Defendant–Appellant.

Opinion by Judge J. JONES.

¶ 1 Defendant, Sonitrol Corporation, appeals the judgment entered against it after a jury trial on the breach of contract claims of plaintiffs, Core–Mark International, Inc. and its wholly owned subsidiary, Core–Mark Midcontinent, Inc. (collectively, Core–Mark); and Core–Mark's casualty insurers, United States Fire Insurance Company and Commonwealth Insurance Company (collectively, the Insurers). It also appeals the district court's award of costs based on that judgment. We affirm the judgment as to liability, reverse the judgment as to damages, vacate the costs award, and remand the case for a new trial on damages.

I. Background

¶ 2 Sonitrol and Core–Mark contracted to have Sonitrol install and monitor a burglar alarm system at one of Core–Mark's warehouses. Section 12.C of the contract purported to limit Sonitrol's liability as follows:

[CORE–MARK] UNDERSTANDS AND AGREES THAT IF [SONITROL] SHOULD BE FOUND LIABLE FOR ANY LOSS OR DAMAGES DUE FROM

A FAILURE TO PERFORM ANY OF ITS OBLIGATIONS OR A FAILURE OF THE EQUIPMENT TO PROPERLY OPERATE, [SONITROL]'S LIABILITY SHALL BE LIMITED TO A SUM EQUAL TO THE TOTAL OF ONE–HALF YEAR'S MONITORING PAYMENTS, OR FIVE HUNDRED DOLLARS ($500) WHICHEVER IS THE LESSER, AND THIS LIABILITY SHALL BE EXCLUSIVE AND SHALL APPLY IF LOSS OR DAMAGE, IRRESPECTIVE OF CAUSE OR ORIGIN, RESULTS DIRECTLY OR INDIRECTLY TO PERSONS OR PROPERTY FROM PERFORMANCE OR NON–PERFORMANCE OF ANY OF [SONITROL]'S OBLIGATIONS OR FROM NEGLIGENCE, ACTIVE OR OTHERWISE, OF [SONITROL], ITS EMPLOYEES OR AGENTS.

¶ 3 In December 2002, Sonitrol failed to detect or to respond to a burglary at the warehouse. One of the burglars, David Ottersberg, started a fire in the warehouse that effectively destroyed the building and its contents.

¶ 4 Core–Mark recovered part of its losses from the Insurers, and it then sued Sonitrol to recover its uninsured losses. The Insurers separately sued Sonitrol in a subrogation action to recover the insured losses. Both plaintiffs asserted tort and breach of contract claims. The cases were consolidated.

¶ 5 Sonitrol moved to dismiss the tort claims based on the economic loss rule and, as relevant here, moved for summary judgment on the breach of contract claims to the extent those claims sought damages in excess of those permitted under Section 12.C of the contract. The district court granted both motions. Core–Mark and the Insurers then voluntarily dismissed the breach of contract claims to the extent the court had not previously dismissed them.

¶ 6 On appeal, a division of this court affirmed the dismissal of the tort claims, but held that the district court had erred by determining that Sonitrol's claims for willful and wanton breach of contract were subject to the limitation of liability in Section 12.C. United States Fire Ins. Co. v. Sonitrol Mgmt. Corp., 192 P.3d 543, 548–49 (Colo.App.2008)( Sonitrol I ). Because there was a genuine issue of material fact as to whether Sonitrol's actions were willful and wanton, the division reversed the summary judgment on the breach of contract claims and remanded the case for further proceedings. Id. at 549–50.

¶ 7 On remand, a jury found in plaintiffs' favor on their claims for willful and wanton breach of contract and willful and wanton breach of the contractual duty of good faith and fair dealing, and awarded Core–Mark $7,348,732 and the Insurers $10,965,777.¹

II. Discussion

¶ 8 On appeal, Sonitrol contends that the division in Sonitrol I erred by ruling that a limitation of liability provision like that here is not enforceable where a party has committed a willful and wanton breach of contract. It also contends that the district court erred on remand by refusing to allow Sonitrol's expert witnesses to testify and by striking Sonitrol's designation of Mr. Ottersberg as a nonparty at fault. We reject Sonitrol's contentions regarding the decision in Sonitrol I and Mr. Ottersberg. However, we agree with Sonitrol that the district court abused its discretion by refusing to allow its experts to testify, and conclude that the error was not harmless.

A. Enforceability of Liability Limitation Provision

1. Law of the Case

¶ 9 Before reaching the merits of Sonitrol's contention, we must consider whether it is appropriate for us to reexamine the prior division's ruling.

¶ 10 When an appellate court rules on an issue in a case, that ruling becomes the law of the case. People v. Roybal, 672 P.2d 1003, 1005 (Colo.1983); Ferrel v. Colo. Dep't of Corr., 179 P.3d 178, 184 (Colo.App.2007). The law of the case doctrine generally requiresa court to follow its prior relevant rulings in the case. Giampapa v. Am. Family Mut. Ins. Co., 64 P.3d 230, 243 (Colo.2003). However, the doctrine “is merely discretionary when applied to a court's power to reconsider its own prior rulings.” Id.; see also Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 817, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (“[T]he law-of-the-case doctrine ‘merely expresses the practice of courts generally to refuse to reopen what has been decided, [and is] not a limit to their power.’... A court has the power to revisit prior decisions of its own or of a coordinate court in any circumstance, although as a rule courts should be loathe to do so in the absence of extraordinary circumstances ....” (citation omitted) (quoting in part Messinger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 56 L.Ed. 1152 (1912))). Thus, a division of this court may review another division's ruling in the same case where “the previous decision is no longer sound because of changed conditions or law, or legal or factual error, or if the prior decision would result in manifest injustice.” Vashone–Caruso v. Suthers, 29 P.3d 339, 342 (Colo.App.2001); accord Saint John's Church in the Wilderness v. Scott, 2012 COA 72, ¶ 9, 296 P.3d 273;see also Giampapa, 64 P.3d at 243.

¶ 11 Here, Sonitrol contends that the Sonitrol I division's ruling was legal error and resulted in manifest injustice. Specifically, Sonitrol argues that the prior division's ruling ignored the distinction between tort and contract claims and failed to consider numerous decisions from other jurisdictions enforcing limitation of liability clauses such as the one at issue here. Because legal error is an exception to the law of the case doctrine, and because the law in this particular area involves relatively subtle, but nonetheless meaningful, distinctions that are sometimes misunderstood, we choose to reach the merits of Sonitrol's contention.²

2. Analysis

¶ 12 Sonitrol does not challenge the sufficiency of the evidence of willful and wanton breach of contract.³ It does, however, challenge the award of damages by asking us to revisit the division's holding in Sonitrol I that a limitation of liability provision is not enforceable to limit the damages recoverable for willful and wanton breach of contract.

¶ 13 A limitation of liability provision is generally enforceable because it represents the parties' bargained-for agreement regarding allocation of risks and costs in the event of a breach or other failure of the contemplated transaction. Metropolitan Life Ins. Co. v. Noble Lowndes Int'l Inc., 84 N.Y.2d 430, 618 N.Y.S.2d 882, 643 N.E.2d 504, 507 (1994); see Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1262 (Colo.2000) (“Contract law is intended to enforce the expectancy interests created by the parties' promises so that they can allocate risks and costs during their bargaining.”); Restatement (Second) of Contracts § 195 cmt. a (1981). As with other contract provisions, however, a limitation of liability provision is not enforceable if, for example, it is contrary to public policy or unconscionable. See Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1191 (Colo.App.2008) (exculpatory clause); see also Meyerstein v. City of Aspen, 282 P.3d 456, 462–63 (Colo.App.2011) (a contract provision that violates public policy is void).

¶ 14 Courts in other jurisdictions have routinely upheld limitation of liability provisions in contracts for the installation and servicing of burglar alarm systems, even in actions premised on system failure. See, e.g., Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44, 48 (2d Cir.1993) (applying Connecticut law) (collecting cases); E.H. Ashley & Co., Inc. v. Wells Fargo Alarm Servs., 907 F.2d 1274, 1278 (1st Cir.1990) (applying Rhode Island law) (“Courts ... have repeatedly upheld limitation of liability clauses in burglar alarm service contracts against allegations that they are violative of public policy or unconscionable.”); see also University Hills Beauty Academy, Inc. v. Mountain States Tel. & Tel. Co., 38 Colo.App. 194, 196, 554 P.2d 723, 725 (1976) (a limitation of liability provision in a services contract is generally valid if it was fairly made and the breaching party has no duty to the public). The courts reason that

“[m]ost persons, especially operators of business establishments, carry insurance for loss due to various types of crime. Presumptively insurance companies who issue such policies base their premiums on their assessment of the value of the property and the vulnerability of the premises. No reasonable person could expect that the provider of an alarm service would, for a fee unrelated to the value of the property, undertake to provide an identical type [of] coverage should the alarm fail to prevent a crime.”

Leon's Bakery, 990 F.2d at 48–49 (quotin...