Court now sides with ADT in Synnex case

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Thursday, July 19, 2007

TRENTON, N.J.--In a decision being hailed as a major victory for the alarm industry, the Superior Court of New Jersey, appellate division, on July 13 reversed a lower court decision in the ADT v. Synnex case.
The court reversed a $4.1 million decision against ADT and dismissed the case.
The case gained widespread attention (search "NJ court case may affect liability limitation" at www.securitysystemsnews.com), fomenting organized support from industry associations such as the National Burglar & Fire Alarm Association and the Central Station Alarm Association.
"It's good news for the industry and certainly welcomed by the folks in New Jersey," said Les Gold of Mitchell, Silverberg & Knupp, a law firm with long ties to the security industry.
The case involved security giant ADT and a New Jersey computer company Synnex Corp. In early 2003, Synnex was burglarized and lost $8 million worth of equipment. Synnex filed an insurance claim and was paid $7.1 million. Looking to recoup some of its cost, that insurance company (Mitsui Sumitomo Insurance Group) noticed that there was a signature missing in the contract. Normally an insurance company can not go after a security company due to standard liability-limiting language in alarm contracts, but the missing signature opened the door for it to sue ADT. The lower court ordered ADT to pay Mitsui $4.1 million.
The July 13 decision said the primary question presented in the appeal was "whether an exculpatory clause in a contract for the sale of a burglar alarm system, which requires the buyer to rely solely on its own insurance for any loss from theft, is contrary to public policy" because of a N.J. statute governing licensing of sellers of alarm systems.
The court decided that the exculpatory clause is "not contrary to public policy because it simply allocates responsibility to the buyer of an alarm system to maintain insurance coverage, and the buyer is in the best position to know the value of its property and to insure against any loss."
Had the court upheld the lower court decision, alarm industry officials warned that the case could be used in other states to say that alarm dealers could not limit their liability.
Gold said, "They also went one step further, saying this is not an appropriate subrogation matter for an insurance company ... [a customer who buys an alarm system is] not paying a premium for the value of what the system is protecting, he's only paying for a system. That's strong language and the Appellate court showed tremendous courage grabbing on to this and telling it the way it is."
Gold also noted that if the alarm company were to be liable for the value of what the system is protecting, "they would have to charge much, much more and it would be more difficult for people to have an alarm system."
Gold also noted the importance of ensuring that authorized representatives of alarm companies sign and approve contracts.
Eric Pritchard, an attorney with Kleinbard, Bell & Brecker, which represents a number of alarm companies, echoed Gold's sentiments and added, "The Appellate [court] position adopted almost wholesale the industry approach ... That was nice to see ... I think this serves as a reminder to dealers to look at their contracts to make sure that the language surrounding the exculpatory clause is written properly."
On a cautionary note, Pritchard said that Synnex could appeal. "There are two levels of appeal in New Jersey ... Synnex could appeal the decision to the Supreme Court," he said.
Synnex has 30 days from the entry of the case in the docket (in this case, July 13) to appeal.