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First Financial Ins. v. Purolator Security





APPEAL from the Circuit Court of Cook County; the Hon. THOMAS O'BRIEN, Judge, presiding.


Plaintiff, First Financial Insurance Company, suing as subrogee of its insured, the Berwyn-Broadway Currency Exchange, brought this action to recover monies paid by plaintiff to its insured as a result of a burglary loss. Defendant, Purolator Security, Inc., was under contract with plaintiff's insured to provide alarm protection services. Both parties appeal from an order of the circuit court of Cook County which in part granted defendant's motion for judgment on the pleadings as to the enforceability of the alarm protection contract, but awarded partial summary judgment in favor of plaintiff and against defendant in the amount of $500.

The issues presented for review are: (1) whether the provisions of the alarm protection service contract which exculpate defendant from liability for its own negligence are against public policy; (2) whether the contract is unconscionable because a disparity of bargaining power existed between the contracting parties; (3) whether the provision of the contract limiting defendant's liability, if any, to $500, is a valid liquidated damage provision; and (4) whether the liquidated damage provision is inconsistent with the contract provisions exculpating defendant from liability.

We affirm the ruling of the trial court upholding the validity of the exculpatory provisions, reverse that part of the order awarding summary judgment to plaintiff for $500 and remand with instructions.

Plaintiff provided insurance coverage to the currency exchange under a Currency Exchange Blanket Bond, for all loss sustained by the currency exchange due to theft, fire, embezzlement and certain other casualty losses. In addition, the currency exchange contracted with defendant Purolator for alarm protection services. Under the terms of defendant's form contract with the currency exchange, defendant agreed to install and maintain a security system on the currency exchange premises, "without liability and not as an insurer." Defendant further agreed "upon receipt of an intrusion alarm signal, [to] transmit the alarm to * * * the Public Police Department, notify the subscriber * * * and within a reasonable time, dispatch its representative to re-set or repair the alarm." The alarm protection service contract contained the following exculpatory provisions:

"11. PUROLATOR does not represent or warrant that the system may not be circumvented or compromised, or that the system will in all cases provide the protection for which the system is designed to detect or avert. It is agreed that PUROLATOR is not an insurer. Insurance, if any, will be obtained by the SUBSCRIBER and the payments hereinbefore specified are based solely upon the value of the services herein described and are unrelated to the value of the SUBSCRIBER's property or property of others located in SUBSCRIBER's premises. It is not the intention of the parties that PUROLATOR assume responsibility for any loss or damage, irrespective of cause or origin, which results directly or indirectly to person(s) or property from performance or nonperformance of obligations imposed by this contract or from negligence, active or otherwise, of PUROLATOR, its agents or employees, including but not limited to loss or damage sustained through burglary, theft, hold-up, fire, or any other cause. Because of the nature of the services to be performed, it is impractical and extremely difficult to fix the actual damages, if any, which may proximately result from the failure on the part of PUROLATOR to perform any of its obligations under this agreement, or from the failure of the system to operate properly. Therefore, if notwithstanding the above provisions, there shall at any time be, or arise, any liability on the part of PUROLATOR by virtue of this agreement, whether due to the negligence of PUROLATOR or otherwise, such liability shall be limited to the sum of five hundred dollars ($500.00). This sum shall be paid and received as liquidated damages and not as a penalty, and such liability shall be complete and exclusive.

12. SUBSCRIBER does hereby for himself and any other parties claiming under him, release and discharge PUROLATOR from and against all hazards covered by SUBSCRIBER's insurance, it being expressly agreed and understood that no insurance company or insurer will have any right of subrogation against PUROLATOR.

13. The SUBSCRIBER agrees to and shall indemnify and save harmless PUROLATOR, its employees and agents, for and against any claims, suits, losses, demands and expenses arising from any death of or injury to any person or any loss or damage to property occasioned or alleged to be occasioned by PUROLATOR's performance or failure to perform its obligations under this agreement whether due to PUROLATOR's negligence or otherwise, or through burglary, theft, robbery, fire or any other cause."

On October 20, 1975, the currency exchange was burglarized by two individuals who entered the premises by cutting a hole in the roof of the structure. During the break-in, the intrusion alarm sounded. Defendant transmitted the alarm to the police and dispatched its own representative to the currency exchange. After inspecting the premises, the police and defendant's representative determined that a false alarm had sounded.

It was later discovered that the burglars had hidden on the roof during this inspection. When the police and defendant's representative had left the premises, the burglars apparently re-entered the currency exchange through the undiscovered hole, took $6,713.45 in currency and food stamps and fled without setting off another alarm.

Under the terms of its bond, plaintiff indemnified the currency exchange for the entire $6,713.45 loss. Any rights of subrogation acquired by plaintiff arise from an assignment of the currency exchange's contractual rights under the alarm protection service contract. As subrogee, plaintiff filed this action to recover the amount of the loss. Count I, the only count of the three count complaint pertaining to defendant Purolator, alleged that the defendant's negligent failure to perform its duties under the alarm protection service contract resulted in the burglary loss.

Defendant filed a motion for judgment on the pleadings, or in the alternative for partial summary judgment, on count I of the complaint. In its motion defendant alleged that under the exculpatory provisions of its contract with the currency exchange, plaintiff acquired no rights of subrogation against defendant, and, further, that defendant was not liable for the loss even if caused by its own negligence and, even if found liable, the dollar amount of its liability could not exceed $500.

Plaintiff answered defendant's motion for judgment on the pleadings and attached an affidavit of Leslie B. Zucker, who had signed the contract on behalf of the currency exchange. Plaintiff admitted that the currency exchange had entered into the alarm protection service contract with knowledge of the exculpatory language; however, plaintiff claimed that paragraphs 11, 12 and 13 of that contract were against public policy and that the contract was unconscionable because a disparity in bargaining power existed between the contracting parties.

The trial court granted defendant's motion for judgment on the pleadings in part, finding that the exculpatory provisions of the contract were valid. However, the court also found that the contract contained an ambiguity which, when construed in favor of plaintiff, entitled plaintiff to recover ...

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