Liability for security system failure: your client's workplace appeared safe: it had a seemingly impenetrable security system, but it proved unreliable when an intruder bypassed it and injured your client. The law affords compensation.

Does an alarm company have a duty to its client's employees or the public to use due care in the installation of an alarm system? Not surprisingly, defendants claim that no such duty exists, but many courts have found otherwise.

A plaintiff who has been injured--physically or financially--as a result of crime on a premises equipped with a faulty security system may pursue several causes of action. Possible liability theories include breach of contract, strict products liability, negligence, breach of warranty, negligent and intentional misrepresentation, and negligent and strict failure to warn.

Courts have held that both contractual and tort duties may arise in these cases. In Nicholas v. Miami Burglar Alarm Co., for example, the owner of a tobacco warehouse brought breach of contract, breach of warranty, and negligence claims against a burglar alarm company, alleging that the company failed to properly monitor the warehouse's alarm system. (1)

The alarm was designed so that an unauthorized entry into the warehouse would trigger both an audible alarm and a silent one that would be transmitted over telephone lines to an answering service. The answering service would notify Miami Burglar Alarm Co., which was required by contract to contact police or the warehouse owner.

If the service were notified of a "trouble signal"--which could be triggered, for example, if voltage across the telephone lines dropped--it was required to alert the alarm company but not police. During a conversation with the plaintiff, a representative of Miami Burglar agreed to contact police or the warehouse owner regardless of whether the company had received notice of an alarm or just a trouble signal--even though the contract required that action only in the case of an alarm.

In the burglary that led to the lawsuit, an alarm company employee received notice of a trouble signal at the warehouse, set off when intruders cut two of the alarm's telephone wires. The employee notified the telephone company but did not fulfill Miami Burglar's promise to contact police or the warehouse owner. The burglars took $15,000 worth of cigarettes.

The Florida Supreme Court held that a jury should decide whether the alarm company was negligent: "The monitoring employees followed company policy and directions in handling this telephone circuit disruption trouble signal in only notifying the telephone company. Whether the company was negligent in the policy it prescribed to handle the trouble signal is a jury issue," the court stated. (2)

The court found that the burglars' intentional act was not necessarily unforeseeable and was therefore not necessarily an intervening cause of the warehouse owner's losses. It recognized that the alarm company's duty existed even though there was no system malfunction or spontaneous failure.

The court also found that causation was an issue for the jury to decide and that "a burglar alarm company, which fails to comply with its contract to call the police and the subscriber immediately upon receipt of a trouble signal from a high-risk tobacco warehouse in a burglary-prone area, can be liable for the loss from a burglary." (3)

Contractual duty

Defendants often argue that they owe no contractual duty to their clients' employees and members of the general public because these people are not in "privity" with the security provider. In most cases, the plaintiff can easily counter this claim. Most state legislatures have adopted some form of Uniform Commercial Code (UCC) [section] 2-318, alternative B, which states:

   A seller's warranty, whether express or implied,
   extends to any natural person who
   may reasonably be expected to use, consume,
   or be affected by the goods and
   who is injured in person by breach of the
   warranty.

The UCC comment to this section supports a third party's right to sue:

   The purpose of this section is to give certain
   beneficiaries the benefit of the same warranty
   which the buyer received in the contract
   of sale, thereby freeing any such beneficiaries
   from any technical rules as to
   "privity." It seeks to accomplish this purpose

   without any derogation of any right or remedy
   resting on negligence.... Implicit in this
   section is that any beneficiary of a warranty
   may bring a direct action for breach of warranty
   against the seller whose warranty extends
   to him. (4)

In most cases, it should be clear that the alarm company and its client expected the plaintiff to "use" and "be affected by" the security devices. In fact, certain components of a security system--for example, so-called panic buttons--are designed for use by any person on the premises to alert the security company to a crime in progress. When the defendant's product fails to perform in accordance with implied warranties and the plaintiff is injured, he or she clearly is "affected by" the failure.

Consequently, the plaintiff can argue that he or she was an intended third-party beneficiary of the contract between the premises owner and the defendant, and privity of contract exists. Even in states such as Florida that have abolished nonprivity warranty claims, if strict liability is available, "the implied warranty cause of action remains unaltered where privity of contract exists." (5)

In Cooper v. I.B.I. Security Service of Florida, Inc.--which the Florida Supreme Court cited with approval in Nicholas--a security company failed to comply with its contract to provide armed-guard protection for an insurance company employee who collected cash premiums in a high-crime area. The plaintiff was assaulted and robbed, and suffered gunshot injuries. The court held that the contract created a tort duty to use due care and that the plaintiff's complaint for negligence stated a cause of action. (6)

The security company argued that Cooper was not entitled to claim the benefit of his employer's contract with the security company and that the company's negligence or breach of contract was not the proximate cause of his injury. The court rejected these arguments and held that "since the plaintiff was one of the persons for whose benefit the protection contract was made, he had standing thereunder as a third-party beneficiary. It was the purpose and object of the contract to obviate or protect the plaintiff from exactly that which occurred when he went unprotected." (7)

The court cited Homan v. County of Dade, which held that "foreseeable acts of third persons are not superceding causes which insulate a prior tortfeasor from liability as a matter of law, where such acts combine with the tortfeasor's negligence to bring about harm to an innocent party." (8)

The alarm company in a case I handled made the very argument that the defendant in Cooper made: that it owed no duty to parties outside the contract it signed with its client. Scott v. Foreline Security, Corp. involved a 1999 bank robbery in Mount Dora, Florida, that left one teller dead and another paralyzed. The plaintiffs alleged negligence, misrepresentation, breach of implied warranty, and strict liability in their claims against Foreline, which placed the bank's surveillance-system VCR and monitor in an unsecured location, contrary to security-industry standards.

The plaintiffs refuted the defense claim that the tellers were not intended beneficiaries of the security services Foreline provided to the bank. Useful deposition testimony came from a Foreline employee who negotiated the contract between the company and the bank, and designed and supervised the installation of the security system:

Q: The wireless devices, as well as the hard-wire ones ... [are] designed in part for safety reasons, correct?

A: Certainly.

Q: You're in the business of security?

A: Yes. Right, right.

Q: And when we say "safety," we mean safety of the people that work at the bank, right?

A: Right.

Q: As well as the money--or is a holdup alarm designed to protect the money in the bank or just the people in the bank?

A: Daytime it's designed, I think, more to protect the people, and at nighttime, the money....

Q: And we've admitted already that the purpose of a holdup alarm is safety of a person ...?

A: Part of it.

Q: Because at night there's not going to be anyone there to push the alarm?

A: Right.

Q: So it would have to be, in part, for the safety of the person?

A: That's certainly a part. (9)

A third-party beneficiary under most states' laws need not be specifically named if he or she is a member of a limited class intended to benefit from the contract. (10) In most cases, a robbery clearly is connected with the target's business and the alarm system clearly is intended to protect the company's employees from harm. Injured employees rely on the alarm and video-surveillance system for their safety. Expert testimony can establish that a holdup alarm system is, by definition, intended to protect people and that a burglary alarm system is designed to protect property.

Misrepresentation claims

In some cases, harm came to the plaintiff because the alarm company made a misleading statement or omitted important information in training people to use the system's features. For example, Elizabeth E. v. ADT Security Systems West, Inc., a Nevada case, involved allegations that an alarm company misrepresented its system's capabilities. (11)

Elizabeth, a night-shift assistant manager at a Las Vegas Taco Bell, was raped by a man who forced her back inside the building as she was leaving one night. The assailant forced her to deactivate the burglar alarm. While doing so, Elizabeth pressed buttons she had been told would trigger a silent alarm. Neither Elizabeth nor the store manager knew that Taco Bell had not purchased the panic feature.

At deposition, store manager Karen Burke testified that an ADT representative told her that the alarm system included the panic feature and instructed her on how to use it. Burke then trained Taco Bell assistant manager trainees, including Elizabeth. The court stated:

   [I]t is apparent that if a representative of
   ADT negligently misrepresented the existence
   of a panic feature that was not purchased
   or programmed into the Taco Bell
   alarm system, a basis for liability in tort has
   been asserted. Moreover, the basis for liability
   is strengthened where the ADT representative
   also instructed the store manager
   how to operate the panic function in
   anticipation of further instruction and reliance
   among Taco Bell employees. (12)

The Nevada Supreme Court found that a tort duty of due care arose from the contract between an alarm company and its client and stated, "[W]e have no difficulty recognizing ADT's duty of care to Taco Bell and its employees not to misrepresent the capabilities of the alarm system." (13)

The court rejected ADT's contention that the plaintiff would be at most an incidental beneficiary under its contract with Taco Bell. "[I]n order to enjoy the status of a third-party beneficiary," the court said, "'there must clearly appear a promissory intent to benefit the third party, and ultimately it must be shown that the third party's reliance thereon is foreseeable." (4)

It found it was reasonable to infer that when ADT said the panic feature was part of Taco Bell's alarm system, the alarm company had to know that Taco Bell employees might use it. Moreover, the ADT representative must have known, and therefore it was foreseeable, that Taco Bell's employees would rely on the availability and effectiveness of the panic alarm during emergencies, just as Elizabeth had. Clearly the existence of such an alarm would be intended to benefit the employees using the system.

Not all courts agree on this issue. In Foreline, the defendant argued successfully to the appeals court that its representative spoke about the security system's features with only the bank manager, not with the employees, and the plaintiffs therefore could not bring claims of misrepresentation.

The plaintiffs alleged that the alarm company fraudulently and negligently misrepresented to the bank that the security system was a "UL [United Laboratories]-listed burglary and holdup alarm system." (15) A security alarm expert testified for the plaintiffs that the system Foreline installed fell short of industry standards for UL-listed systems: It lacked the panic buttons and alarms that the employees could have used during the robbery. The jury faulted Foreline, finding that the tellers' injuries resulted from their reliance on the company's misrepresentations.

The appeals court overturned the verdict, stating that "for [plaintiff] Scott to recover on her claim of fraudulent misrepresentation, Scott must prove ... reliance on a fraudulent misrepresentation.... There is no evidence in the record that Foreline communicated any misrepresentation of fact to Scott or that Scott relied on any misrepresentation." (16)

Failure to warn

Like other product manufacturers and distributors, an alarm company has a duty to warn its systems' users about potential dangers. The Utah Supreme Court addressed this issue in DCR, Inc. v. Peak Alarm Co. (17) A store owner sued an alarm company after a burglar deactivated the alarm using a technique well known to criminals and took $55,000 worth of inventory. The parties' contract provided for the installation and maintenance of the system and included a clause fixing liquidated damages at $50.

After the burglary, the plaintiff learned that Peak Alarm had been aware of the burglar's deactivation technique--and of an easy, inexpensive way to protect against the risk of deactivation. The defendant didn't warn the plaintiff of the system's vulnerability or suggest a way to protect it.

The plaintiff alleged that the company had been negligent in maintaining the alarm system and in failing to warn of its inadequacies. The defendant contended that it had no duty of care.

The Utah Supreme Court held that the defendant had a duty to warn of known hazards and defects:

   [D]efendant's duty to warn plaintiff of the
   vulnerability of its alarm system does not
   originate from any promise contained within
   the service contract itself. Rather, the
   duty as it exists in this case is derived from
   defendant's general duty of due care, which
   accompanies its ongoing contractual relationship
   with plaintiff for service and maintenance
   of the alarm system. (18)

The court found that a contractual relationship for the performance of services imposes on each party a general duty of due care toward the other. It concluded, "A party who breaches his duty of due care toward another, may be found liable to the other in tort, even where the relationship giving rise to such a duty originates in a contract between the parties." (19)

A client who has been injured in a robbery or other crime committed on a premises equipped with a faulty security system has several avenues by which to pursue compensation. Security companies can be held responsible if they fail to meet their duty to adequately and effectively design, install, monitor, maintain, and repair an alarm system. Breach of contract, strict products liability, negligence, breach of warranty, negligent and intentional misrepresentation, and negligent and strict failure to warn are all viable claims.

Notes

(1.) 339 So. 2d 175 (Fla. 1976).

(2.) Id. at 177.

(3.) Id. at 180 (Adkins, J., dissenting in part and concurring in part).

(4.) U.C.C. [section] 2-318, cmt. n.2 (2004).

(5.) Kramer v. Piper Aircraft Corp., 520 So. 2d 37, 39 n.4 (Fla. 1988).

(6.) 281 So. 2d 524, 526 (Fla. Dist. Ct. App.), cert. denied, 287 So. 2d 95 (Fla. 1973).

(7.) Id..

(8.) 248 So. 2d 235, 238 (Fla. Dist. Ct. App. 1971).

(9.) See Deposition of Melvin Edward Hughes (June 30, 2000) at 31, 46, Scott v. Foreline Sec. Corp., No. 00-129 (Fla., Lake County Cir. Ct. Feb. 14, 2002).

(10.) See, e.g., Technicable Video Sys., Inc. v. Americable of Greater Miami, Ltd., 479 So. 2d 810 (Fla. Dist. Ct. App. 1995); Smith v. TCI Communications, Inc.. 981 P.2d 690 (Colo. Ct. App. 1999).

(11.) 839 P.2d 1308 (Nev. 1992) (per curiam).

(12.) Id. at 1311.

(13.) Id.

(14.) Id. (quoting Lipshie v. Tracy Inv. Co., 566 P.2d 819, 824-25 (Nev. 1977)) (citations omitted).

(15.) Foreline Sec. Corp. v. Scott, 871 So. 2d 906, 908 (Fla. Dist. Ct. App. 2004).

(16.) Id. at 910.

(17.) 663 P.2d 433 (Utah 1983).

(18.) Id. at 437.

(19.) Id. at 435.

RAYMOND O. BODIFORD is a partner with Crews & Bodiford in Orlando, Florida.