United States District Court, Northern District of Illinois, E.D
August 5, 1985
ALLENDALE MUTUAL INSURANCE COMPANY, AS SUBROGEE OF INTERSTATE INDUSTRIES, INC., AND SEARS ROEBUCK & COMPANY, PLAINTIFFS,
LEASEWAY WAREHOUSE, INC., AND AMERICAN DISTRICT TELEGRAPH COMPANY, DEFENDANTS.
The opinion of the court was delivered by: Nordberg, District Judge.
MEMORANDUM OPINION AND ORDER
Defendant American District Telegraph Company ("ADT"), has
brought a motion for summary judgment against the plaintiff,
Allendale Mutual Insurance Company ("Allendale"), and for summary
judgment against its co-defendant Leaseway Warehouse, Inc.
("Leaseway"). Leaseway has also moved for summary judgment
against the plaintiff, Allendale. For the foregoing reasons,
Leaseway's motion is denied, and both motions of ADT are granted.
ADT and Leaseway entered into a contract whereby ADT agreed to
provide Leaseway with supervisory sprinkler and water flow alarm
service which would detect any water leakage from the sprinkler
system within Leaseway's warehouse. The contract contained the
"The subscriber (Leaseway) does not desire this
contract to provide for full liability of the
contractor (ADT) and agrees that the contractor shall
be exempt from liability for loss, damage or injury
due directly or indirectly to occurrences or
consequences therefrom which the service or system is
designed to detect or avert; . . ."
In the event any person, not a party to this
agreement, shall make any claim or file any lawsuit
against the contractor for failure of its equipment
or service in any respect, subscriber agrees to
indemnify, defend and hold contractor harmless from
any and all such claims and lawsuits including the
payment of all damages, expenses, costs and
The plaintiff, Allendale, was not a party to this contract, nor
were its subrogors.
A contract did exist between the subrogor and Leaseway whereby
Leaseway agreed to store Interstate Industries, Inc.
("Interstate") stereo consoles at its warehouse. According to
Leaseway, its liability for any losses for damages was limited by
the warehouse receipts which contained the terms and conditions
of the bailment. The receipts stated the time period in which a
claim must be made (60 days) and the time period for the
commencement of an action (nine months) against Leaseway.
On the night of January 27, 1979 a large chunk of ice fell from
the roof and wall of the Leaseway warehouse where the stereo
consoles were stored. The ice broke a water pipe connected to the
sprinkler system. The alarm sounded and was received by ADT. ADT
notified the Alsip Fire Department and sent out an alarm
investigator. Both found nothing. ADT also alerted a Leaseway
employee, who told ADT he would check out the situation. However,
the employee never arrived at the warehouse because his auto got
stuck in the snow. He contacted ADT and told them that he would
be unable to respond to the alarm. ADT did not call or notify any
other Leaseway employee. Water continued to flow from the broken
pipe, damaging the property of Interstate.
The plaintiff is now seeking a recovery of the amount it paid
to the insured. Leaseway, however, contends that no claim was
filed within 60 days nor was this action commenced within nine
months of the accident. Consequently, the plaintiff cannot
recover. Yet, the plaintiff contends that its insured never
received receipts. Further, even if the subrogor did receive such
receipts, Leaseway had sufficient notice of
the claim for damages because of communications which were made
between the parties pertaining to the damaged property.
In addition to claims against Leaseway, the plaintiff contends
that ADT is liable to it in tort. According to the plaintiff
liability is imposed under § 324A of the Restatement which
creates liability when a person negligently performs an
undertaking. The Restatement states:
"One who undertakes, gratuitously or for
consideration, to render services to another which he
should recognize as necessary for the protection of a
third person or his things, is subject to liability
to the third person for physical harm resulting from
his failure to exercise reasonable care to protect
his undertaking, if
(a) his failure to exercise reasonable care increases
the risk of such harm, or
(b) he has undertaken to perform a duty owed by the
other to the third person, or
(c) the harm is suffered because of reliance of the
other or the third person upon the undertaking."
ADT contends, however, that it is entitled to summary judgment
because its obligation to third parties such as the subrogor
Interstate are determined by its contract with Leaseway. This
contract sets the boundaries of the undertaking. Hence, the
exculpatory clauses are applicable to the plaintiff also.
ADT also argues that it is entitled to summary judgment against
its co-defendant Leaseway. Leaseway filed a cross-claim against
ADT contending that the contract between the parties was an
unconscionable adhesion contract and therefore unenforceable. ADT
disagrees, stating that the contract is binding, and therefore
ADT is relieved of any liability to Leaseway.
Defendants have moved for summary judgment on all four counts.
On a motion for summary judgment, the moving party has the burden
of establishing that there is no genuine issue of material fact
and that it is entitled to judgment as a matter of law. Cedillo
v. International Association of Bridge and Structural Iron
Workers, 603 F.2d 7, 10 (7th Cir. 1979). The non-moving party is
entitled to all reasonable inferences that can be made in its
favor. United States v. Diebold, Inc., 369 U.S. 654, 655, 82
S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). However, the plaintiff may
not merely rely on conclusory pleadings to withstand summary
judgment. In responding to a motion for summary judgment, a
plaintiff must set forth specific fact in affidavits or otherwise
showing that there are genuine issues that must be decided at
trial. First National Bank of Arizona v. Cities Service Co.,
391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); Posey v. Skyline
Corp., 702 F.2d 102, 105 (7th Cir. 1983).
The purpose of the summary judgment procedure is to eliminate
a trial in cases where a trial is unnecessary and results in
delay and expense. Mintz v. Mathers Fund, Inc., 463 F.2d 495, 498
(7th Cir. 1972). As the Seventh Circuit Court of Appeals has
noted, with the ever-increasing burden upon the judiciary,
persuasive reasons exist for the utilization of summary judgment
procedures whenever possible. Kirk v. Home Indemnity Co.,
431 F.2d 554, 559-60 (7th Cir. 1970). Court therefore will not strain
to find the existence of a genuine issue where none exists. Id.
I. Leaseway's Motion for Summary Judgment Against Allendale
Leaseway contends that its liability to Allendale is limited by
the receipts given to the subrogor. Further, it argues that the
plaintiff failed to meet the conditions of the receipts, and
therefore the plaintiff cannot recover. The plaintiff states that
no receipts were given to its subrogor and consequently it had no
knowledge of the time limitations. The affidavits reflect this
conflict. In addition, Leaseway has failed to produce a copy of
the receipts allegedly owed to Allendale. The court therefore
finds that a genuine issue of material fact exists, and summary
judgment is denied on this basis. The Court does not reach any
other issue raised in the motion for summary judgment at this
II. ADT's Motion for Summary Judgment Against Cross-Defendant
ADT and Leaseway entered into a contract. This contract, as
previously stated, contained exculpatory clauses which exempted
ADT from liability. Leaseway contends that the contract was an
unconscionable adhesion contract and therefore unenforceable. ADT
contends that the contract is enforceable, and therefore Leaseway
has a duty to defend and cannot hold ADT liable for any losses
In keeping with the principle of freedom of contract,
contractual limitations are generally held valid in Illinois.
Pick-Fisheries, Inc. v. Burns Electronics Service, Inc.,
35 Ill. App.3d 467, 342 N.E.2d 105 (1976). If, however, the contract
is against settled public policy or there is something in the
social relationship which militates against upholding the
agreement, the contract will not be enforced. Jackson v. First
National Bank, 415 Ill. 453, 114 N.E.2d 721 (1953).
In Fireman's Fund American Insurance Co. v. Burns Electronics
Services, Inc., 93 Ill.App.3d 298, 48 Ill.Dec. 729,
417 N.E.2d 131 (1981), the defendant agreed to provide a burglary alarm
system to a jewelry store. The contract absolved the defendant
from any liability for loss caused by a failure of the system,
even if the loss was caused by the defendant's negligence. The
clause was found to be valid and upheld by the court. Contracts
with similar clauses have also been upheld by Illinois courts in
the past. See, First Financial Insurance Co. v. Purolator
Security, Inc., 69 Ill.App.3d 413, 26 Ill.Dec. 393, 388 N.E.2d 17
(1979); Pick-Fisheries, Inc., 35 Ill.App.3d 467, 342 N.E.2d 105.
The exculpatory clauses found in the present case are virtually
identical to those found in Fireman's Fund. It is undisputed that
the contract was voluntarily made at arms length between two
corporations. The contract in this case is enforceable between
the parties just as the contract in Fireman's Fund was
Accordingly, since no genuine issue of material fact exists,
and the contract is binding and enforceable, the defendant ADT is
entitled to summary judgment.
III. ADT's Motion for Summary Judgment Against Allendale
Defendant ADT has also moved for summary judgment against the
plaintiff, Allendale. The plaintiff alleges that ADT is liable in
tort under § 324A of the Restatement, "Liability to 3rd Persons
for Negligent Performance of Undertaking", which has been adopted
by Illinois courts. See, Pippin v. Chicago Housing Authority,
78 Ill.2d 204, 35 Ill.Dec. 530, 399 N.E.2d 596 (1979); accord Cross
v. Wells Fargo Alarm Services, 82 Ill.2d 313, 45 Ill.Dec. 121,
412 N.E.2d 472 (1980). According to the plaintiff, the defendant
negligently performed its duty regarding the alarm service and
this negligence caused the damage to the subrogor's property.
The Illinois Supreme Court has held that any duty owed under §
324A is limited by the terms of the contract creating the duty.
In Pippin v. Chicago Housing Authority, 78 Ill.2d 204, 35
Ill.Dec. 530, 399 N.E.2d 596, the Court held a security company
liable for injuries to a third person, who was visiting premises
that the security company had contracted to guard. The court held
that the security company assumed the duty owed to persons
lawfully on the premises, "of exercising reasonable care in the
performance of its contracted obligation." (emphasis added) Id.
at 78 Ill.2d at 204, 35 Ill.Dec. at 534, 399 N.E.2d at 600. Thus,
since the security company had contractually assumed the duty to
protect the premises of the persons therein, it owed a duty to
the plaintiff under § 324A.
However, in Cross v. Wells Fargo Alarm Services, 82 Ill.2d 313,
45 Ill.Dec. 121, 412 N.E.2d 472 (1980), the Illinois Supreme
Court held that no duty was owed to third persons lawfully on the
premises, where the terms of the contract did not require Wells
Fargo to protect the premises at the
time of the injury. Thus, when no contractual duty was owed, no
duty arose under § 324A.
In the instant case, under these cases, any obligation which
ADT owes to third persons must derive from the contract between
ADT and Leaseway. The contractual limitations on ADT's liability
to Leaseway and other parties limit its duty to the plaintiff
under § 324A. Since ADT's contract specifically states that ADT
could not be held liable for damages caused by it, no duty was
assumed under the contract, and therefore no duty can be imposed
under § 324A. Without a contractual basis for imposing a duty
under § 324A, Allendale cannot recover from ADT under this
theory. Since there exists no genuine issue of material fact in
this regard, ADT is entitled to summary judgment against
Accordingly, summary judgment is granted in favor of ADT and
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