Court Sides With ADT, Alarm Industry; Strikes Down $4M Ruling

TRENTON, N.J.

July 15, 2007 SSI Staff

In what is being hailed as a significant legal victory for the entire alarm industry, an appellate court in New Jersey has reversed a $4 million judgment against ADT in a case that involved a burglary of computer equipment from a warehouse.

In 2002, ADT installed an alarm system for Synnex Corp., a New Jersey-based computer company. About six months after the installation, Synnex was burglarized and lost an estimated $8 million worth of equipment. An investigation revealed that the intruders disabled or destroyed parts of the alarm system, including the cellular backup.

The insurer of the stolen equipment, Mitsui Sumitomo Insurance Group, paid Synnex a multimillion dollar settlement. Sumitomo then sued ADT under its subrogation rights in Synnex’s name. The complaint alleged that ADT had been negligent both in designing the burglar alarm system and in communicating with Synnex after it received alarm signals on the night of the burglary.

ADT moved for summary judgment during the discovery stages of the case based on an exculpatory clause in the contract, which included the following passage: “Customer agrees to look exclusively to customer’s insurer to recover for injuries or damage in the event of any loss or injury and releases and waives all right of recovery against ADT arising by way of subrogation.”

However, a state court judge ruled the clause was not enforceable. According to the judge, the absence of multiple signatures on the original contract by authorized representatives of ADT – the contract was signed by one ADT representative, but should have been approved by at least two company signatories – precluded ADT from relying upon the exculpatory clause.

The judge allowed the case to proceed to a jury, while saying even if the contract had been legally binding the exculpatory clause would have been ineffective because it was contrary to public policy as expressed in a 1997 amendment to the Electrical Contractors Licensing Act, which extended the statute to alarm companies.

The jury would eventually decide the insurer lost $8 million and that ADT was liable for half that amount.

ADT filed an appeal to the Superior Court of New Jersey, Appellate Division, arguing the judge should not have negated the contract simply because one of the ADT representatives failed to sign the contract.

In reversing the jury’s decision to hold ADT liable, the appellate court concluded that ADT’s delivery and installation of the burglar alarm system constituted acceptance of the contract, despite the absence of a second signature by an authorized representative of ADT, thus binding both parties to the terms of the contract, including the exculpatory clause.

The appellate court also concluded that the exculpatory clause is not unenforceable as contrary to public policy because “it simply allocates responsibility to Synnex to maintain insurance coverage for the theft of its property.”

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