Homeowners signed a contract with ADT for an alarm system, which included smoke detectors. The date of that contract is not in the facts of the case. After signing the contract — the time is also not specified — an ADT tech removed a smoke detector that was defective on the second floor. It's not clear if ADT installed the system.
The facts here are interesting. The homeowner claims that they called ADT numerous times to come and re-install a smoke detector. ADT claims it told the homeowner "that it was difficult to fix the smoke detector because parts were no longer available" (I really don't understand that statement attributed to ADT). Anyway, three years went by, and the smoke detector was not replaced. The homeowners had no functioning alarm system on the second floor of their home for more than years; however, they paid the monthly charges during this time.
Here is the next factual finding by the Court:
"On Sept. 5, 2004, a fire broke out on the second floor of the Greenspans'residence. Because the smoke detector on that floor had been removed, the fire was not detected in time to prevent approximately $400,000 in damages to the Greenspans' personal property."
Both the homeowner and their insurance carrier sued ADT. ADT, relying on its contract's limitation of liability clause, moved for summary judgment to limit liability to $500. The lower court [Federal District Court] "granted partial summary judgment to ADT. The court held that the $500 limitation of liability clause was enforceable and applied to all of the Greenspans' claims. However, the district court concluded that the Greenspans' tort claims were not barred by the gist of the action doctrine."
So, what is the "gist of the action doctrine" that so confused the District Court?
The real claim or, as we lawyers refer to it, cause of action, is for breach of contract. The relationship arises out of the contract and the claim is that the alarm company failed to perform its obligations under the contract. However, breach of contract permits only certain damages, and they are typically not consequential. Breach of contract damages are typically the difference between what was bargained for and what it cost to complete. If you want other types of damages, like loss of the inventory from a burglary, then you try and fashion the claim in Tort, alleging negligence. To get around the contract protective provisions, the claims usually allege gross negligence or willful conduct. That's what happened in this case. The lower court enforced the contract as against the breach of contract cause of action, but then permitted a cause of action for none contract claims. This is explained in the decision:
"In Pennsylvania, the 'gist of the action doctrine ... operates to preclude a plaintiff from re-casting ordinary breach of contract claims into tort claims' ... The nature of the wrong attributed to the defendant is 'the gist of the action, the contract being collateral.'
"The important difference between contract and tort claims is that the latter lie from the breach of duties imposed as a matter of social policy while the former lie from the breach of duties imposed by mutual consensus."
ADT's contract with the Greenspans imposed a duty to monitor, maintain and repair the alarm system, and ADT clearly breached that duty when it failed to replace the Greenspans' defective smoke detector. However, ADT's obligations to the Greenspans arose solely out of the contract. We know of no legal theory that would allow us to impose some objective social duty on an alarm company outside of the duties imposed by a contract, and we are unconvinced by the Greenspans' attempt to have us recognize such a duty. There simply is no separate "tort" duty to monitor an alarm system." [citations omitted]
The Standard Form Contracts address this by providing that all claims arising under the contract and the relation of the parties are merged in the contract; there are no independent duties outside of the contract. Despite this language, courts have held that an independent duty can arise — for example — fire monitoring within the City of New York.