United States Fire Insurance Co. v. Sonitrol Management Corporation, Court of Appeals No.: 07CA0060 (Colo. App. 7/24/2008)
| Decision Date | 24 July 2008 |
| Docket Number | Court of Appeals No.: 07CA0061.,Court of Appeals No.: 07CA0060. |
| Parties | United States Fire Insurance Co.; Commonwealth Insurance Co.; Core-Mark Midcontinent, Inc.; and Core-Mark International, Inc., Plaintiffs-Appellants, v. Sonitrol Management Corporation, n/k/a Sonitrol Corporation, Defendant-Appellee. Core-Mark Midcontinent, Inc. and Core-Mark International, Plantiffs-Appellants, v. Sonitrol Management Corporation, n/k/a Sonitrol Corporation, Defendant-Appellee. |
| Court | Colorado Court of Appeals |
In this case concerning a contract for burglar and fire alarm services, two groups of plaintiffs who had filed separate actions appeal two orders for summary judgment issued in favor of the alarm company, Sonitrol Management Corporation (Sonitrol). The two cases were consolidated in the district court. Plaintiffs contend on appeal that the district court incorrectly applied the economic loss rule and erroneously enforced a limitation of liability clause. We agree in part, reverse the judgments, and remand for further proceedings.
JUDGMENT REVERSED AND CASE REMANDED WITH DIRECTIONS.
Davis Graham & Stubbs, LLP, Andrew M. Low, Elizabeth H. Titus, Denver, Colorado; Cozen O'Connor, Thomas M. Dunford, Denver, Colorado; Pirece & Weiss, LLP, Brian S. Letofsky, Anaheim, California, for Plaintiffs-Appellants.
Hall & Evans, L.L.C., Alan Epstein, Brian P. Molzahn, Devi C. Yorty, Denver, Colorado, for Defendant-Appellee.
Opinion by JUDGE NEY*.
Plaintiffs in the first case, United States Fire Insurance Co., Commonwealth Insurance Co., Lexington Insurance Co., United Insurance Co., United Fire & Casualty, Tartan Products Co., and Western Innovations, Inc. (Insurers), and the plaintiffs in the second case, Core-Mark Midcontinent, Inc. and Core-Mark International, Inc. (Core-Mark), argue the same legal issues in similar briefs, with similar answers from Sonitrol. Accordingly, we have consolidated the appeals.
Core-Mark distributes merchandise to convenience stores. It leased approximately 90,000 square feet of a 120,000 square foot warehouse for storing inventory. The Insurers insured the warehouse and inventory.
Sonitrol markets security and fire alarm services, and in 1995 contracted with Core-Mark to install and monitor an alarm system to protect the warehouse.
Pertinent provisions of the contract are as follows:
12. LIMITATIONS OF DAMAGES:
A. It is understood and agreed by the parties hereto that DEALER [Sonitrol] is not an insurer and that insurance, if any, covering personal injury and property loss or damage on CLIENT'S premises shall be obtained by CLIENT [Core-Mark], at CLIENT'S sole expense; that the payments provided for herein are based solely on the value of the service as set forth herein and are unrelated to this value of CLIENT'S property or the property of others located on CLIENT'S premises;
. . .
C. CLIENT UNDERSTANDS AND AGREES THAT IF DEALER SHOULD BE FOUND LIABLE FOR ANY LOSS OR DAMAGE DUE FROM A FAILURE TO PERFORM ANY OF ITS OBLIGATIONS OR A FAILURE OF THE EQUIPMENT TO PROPERLY OPERATE, DEALER'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 DEALER'S OBLIGATIONS OR FROM NEGLIGENCE, ACTIVE OR OTHERWISE, OF DEALER, ITS EMPLOYEES OR AGENTS.
Sonitrol's services included remote monitoring of microphones that could detect sounds made by intrusions into the warehouse. These microphones, or audio detectors, would send an audio activation signal when they detected a sound exceeding a minimum volume, and record and store five seconds of the audio. The alarm system would also make an automated telephone call to a central monitoring facility. The operators monitoring the console in that facility were instructed to replay the five seconds of stored audio recording and listen to live audio transmission for at least forty-five seconds. If the operator heard a burglary in progress, he or she would dispatch the local police. However, if the operator determined the activation was a false alarm, the operator could reset the alarm. Resetting the alarm erased the stored audio and terminated the telephone connection to the monitored premises.
In December 2002, a burglar entered Core-Mark's warehouse while it was closed over the weekend. He returned a little later with two confederates, and the three looted the warehouse for approximately three hours. They made no effort to be quiet, but shouted to each other, threw boxes around, and used a noisy gravity chute lined with steel rollers to move boxes. When they were ready to leave, one of the burglars smashed boxes of flammable liquids, pulled down large jugs of methanol, and set two fires at 8:42 a.m. The fire department arrived on the scene eleven minutes later at 8:53 a.m., alerted by a passerby, but it was too late to save the property.
During this episode, Sonitrol's off-site monitoring center received audio activations caused by the noise the burglars created. Two different Sonitrol employees received the alarms and reacted as follows: (1) audio activation at 1:35 a.m., no replay of stored audio, alarm reset in 36 seconds, no call to police; (2) audio activation at 6:50 a.m., no replay of stored audio, alarm reset in 4 seconds, no call to police; (3) audio activation at 7:29 a.m., no replay of stored audio, alarm reset in 40 seconds, no call to police; (4) audio activation at 7:56 a.m., no replay of stored audio, alarm reset in 1 minute and 49 seconds, no call to police; (5) audio activation at 8:36 a.m., no replay of stored audio, alarm reset in 2 minutes and 10 seconds, no call to police; (6) audio activation at 8:44 a.m., operator replayed stored audio, no call to police; (7) 8:46 a.m. (four minutes after fire started), the telephone connection between warehouse and monitoring center was severed. At 9:05, the Sonitrol employee called the fire department, which had been at the scene for twelve minutes.
Despite the fire department's efforts, the fire burned for a week and destroyed the building and all the inventory, resulting in a loss of approximately $20 million.
Core-Mark and the Insurers filed separate lawsuits against Sonitrol. As pertinent to this appeal, they asserted claims for (1) negligence, (2) gross negligence, and (3) breach of contract. These lawsuits were consolidated with a number of others related to the warehouse fire.
The district court granted Sonitrol's motion to dismiss Core-Mark's claims for negligence and gross negligence. Sonitrol moved for summary judgment against both Core-Mark and the Insurers, which was granted. Cf. Western Innovations, Inc. v. Sonitrol Corp., ___ P.3d ___ (Colo. App. No. 06CA2275, May 15, 2008) (in litigation arising from the same incident, tort claims of another tenant, not a party to the contract between Sonitrol and Core-Mark, summarily dismissed).
In granting summary judgment on Core-Mark's claims, the district court concluded as pertinent here: (1) the economic loss rule applied to bar tort claims; and (2) the limitation of damages clause in the contract was enforceable. Although the district court acknowledged Core-Mark's argument with respect to willful and wanton conduct, it did not address that argument.
In granting summary judgment on the Insurers' claims, the district court concluded as pertinent here: (1) the economic loss rule barred tort claims (applying a previous order as the law of the case); and (2) the limitation of liability clause was enforceable as to the Insurers as well as Core-Mark (adopting the reasoning of a previous order).
The parties dismissed their remaining claims, limited by the district court's orders to $500 (as provided under the contract), to the extent and only to the extent they were not previously dismissed by the court's orders. The district court issued a C.R.C.P. 54(b) certification, stating the orders for summary judgment fully disposed of the claims against Sonitrol.
Core-Mark and the Insurers appeal only the orders granting summary judgment.
We review a district court's grant of summary judgment de novo. A.C. Excavating v. Yacht Club II Homeowners Ass'n, 114 P.3d 862, 865 (Colo. 2005). "Summary judgment is appropriate when the pleadings and supporting documents clearly demonstrate that no issues of material fact exist and the moving party is entitled to judgment as a matter of law." Id. "The nonmoving party is entitled to the benefit of all favorable inferences that may be drawn from the undisputed facts, and all doubts as to the existence of a triable issue of fact must be resolved against the moving party." Id.
Core-Mark and the Insurers contend the district court erred in dismissing their negligence claims under the economic loss rule, because Sonitrol owed an independent duty of care. Sonitrol argues that the duty specified in the burglar alarm contract and the alleged duty in tort are identical, and so there is no duty independent of that created by the contract. We agree with Sonitrol.
"Economic loss is defined generally as damage other than physical harm to persons or property." Parr v. Triple L & J Corp., 107 P.3d 1104, 1108 (Colo. App. 2004). "The proper focus in an analysis under the economic loss rule is on the source of the duties alleged to be breached." Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo. 2000). "The essential difference between a tort obligation and a contract obligation is the source of the parties' duties." BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d...
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