The opinion of the court was delivered by: Justice O'mara Frossard
Appeal from the Circuit Court of Cook County Honorable Philip L. Bronstein, Judge Presiding.
Plaintiffs Chicago Steel Rule & Die Fabricators Co. (Chicago Steel) and Travelers Indemnity Company of Illinois (Travelers), as subrogee of Chicago Steel, brought this action against defendants ADT Security Systems, Inc., its successor corporation ADT Security Services, Inc. (ADT), and Tyco International, Ltd. (Tyco), to recover damages resulting from a fire that occurred at a plant operated by Chicago Steel. This case presents an issue of first impression as to whether an exculpatory clause in a contract between two commercial parties can preclude one of the commercial parties from bringing property damage claims based on strict products liability.
On the date of the fire, ADT maintained a fire alarm system that it had previously installed at the Chicago Steel plant. Plaintiffs alleged that the failure of the alarm system and/or ADT's failure to maintain and monitor the system caused a delay in notification to the Chicago fire department and resulted in substantial property damage. Their complaint included four counts: (1) strict products liability; (2) breach of contract; (3) negligence; and (4) gross negligence. The plaintiffs allege property damage to property other than the alleged defective product (other property). Tyco, ADT's parent company, was never served with process and is not a party to this appeal. ADT filed a motion to dismiss plaintiffs' complaint, based in part upon an exculpatory clause contained in its fire alarm installation and maintenance contract with Chicago Steel which released ADT from future negligence, breach of contract, and strict liability claims. The trial court granted ADT's motion, but gave plaintiffs leave to amend the gross negligence count included in their complaint. Plaintiffs did not amend that count, and the trial court subsequently entered an order pursuant to Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)) finding that its prior dismissal order was final and that there was no just reason to delay its enforcement or appeal. Plaintiffs now appeal the dismissal of their strict liability, negligence, and breach of contract counts, contending that the exculpatory clause was unenforceable.
On July 16, 1997, Chicago Steel entered into a contract with ADT pursuant to which ADT agreed to design, sell, install and/or maintain a fire alarm system, and provide fire alarm monitoring and reporting services for Chicago Steel's plant at 6630 W. Wrightwood Avenue in Chicago. Under the terms of the contract, ADT was to maintain the fire alarm system and inspect it four times per year. Chicago Steel was to pay ADT $3,472 annually.
The contract stated ADT was not an insurer and would be exempt from liability for damage to property, whether based on breach of contract, negligence, or strict liability. The contract also contained a limitation of damages clause limiting any liability on ADT's part to the greater of 10% of the annual service charge or $1,000. The contract, however, gave Chicago Steel the option to pay for an allocation of additional liability to ADT. The record reflects that Chicago Steel did not exercise that option.
On January 2, 1999, following the alarm system's installation, a fire occurred at the Wrightwood plant, causing substantial damage to property located there. Chicago Steel submitted a fire damage claim to Travelers, its insurer. Travelers paid the claim and thus became the subrogee of Chicago Steel.
In December 1999, plaintiffs filed their complaint against defendants. The strict products liability count alleged that the alarm system was defective and unreasonably dangerous, failed to detect fire in the Chicago Steel plant, failed to adequately monitor water flow in the automatic sprinklers located in the plant, failed to signal ADT to notify the Chicago fire department of the fire and was otherwise inadequately designed, manufactured, sold, installed or maintained by ADT. The breach of contract count and negligence counts both alleged that ADT "failed to design, manufacture, sell, install and/or maintain a system that would adequately detect fire," failed to adequately monitor water flow in the automatic sprinklers, and failed to notify the Chicago fire department of the fire upon receiving an alarm indicating that the automatic sprinklers had been activated. ADT filed a motion to dismiss the complaint, contending that it failed to state sufficient facts to support its claims and contending, pursuant to section 2-619(a)(9) of the Illinois Code of Civil Procedure (Code) (735 ILCS 5/2-619(a)(9) (West 1998)), that the exculpatory clause in the subject contract constituted an affirmative defense that barred plaintiffs' claims.
The trial court granted ADT's motion to dismiss, stating at the hearing on the motion that the exculpatory clause was a "good and proper exculpatory, arm's length agreement, [with] nothing to suggest otherwise, [and] no claim of unconscionability." The court also stated that the exculpatory clause "forms the predicate for the obligations of the parties." Based upon these findings, the trial court entered a written order dismissing plaintiffs' strict products liability, negligence, and breach of contract counts with prejudice pursuant to section 2-619(a)(9) of the Code.
Plaintiffs contend on appeal that the trial court erred by dismissing those three counts based on its conclusion that the exculpatory clause was enforceable and therefore constituted a valid affirmative defense. Section 2-619(a)(9) allows dismissal of an action when "the claim asserted *** is barred by other affirmative matter avoiding the legal effect of or defeating the claim." 735 ILCS 5/2-619(a)(9) (West 1998). Accordingly, we review the dismissal of plaintiffs' claims de novo as a matter of law. Kedzie & 103rd Curency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 116-17 (1993).
Contractual provisions releasing parties from future liability, commonly referred to as exculpatory clauses or disclaimers, are not favored in Illinois and are strictly construed against the party they benefit. Scott & Fetzer Co. v. Montgomery Ward & Co., 112 Ill. 2d 378, 395 (1986); Harris v. Walker, 119 Ill. 2d 542, 548 (1988). However, such a provision will be enforced if: (1) it clearly spells out the intention of the parties; (2) there is nothing in the social relationship between the parties militating against enforcement; and (3) it is not against public policy. Harris, 119 Ill. 2d at 548; Scott, 112 Ill. 2d at 395. The rationale supporting enforcement in Illinois of such provisions is the "broad public policy permitting competent parties to ...