Fire Alarm Contract Doesn’t Create Implied Warranty Claim – IL ND

Two titans of their respective industries went head-to-head in Allstate Indemnity Company v. ADT, LLC, 2015 WL 3798715 (N.D.Ill. 2015), a dispute over an alarm company’s responsibility for fire damage to its homeowner customer.

After a 2013 house fire decimated its insured’s home to the tune of about $1.4M in damages, the plaintiff home insurer (Allstate) sued ADT, the home smoke and fire alarm installer, for negligence, breach of contract and consumer fraud for failing to complete smoke detector repairs it was hired to complete about 7 months before the fire.

The Northern District, in Allstate Indemnity Company v. ADT LLC, 2015 WL 3798715, *2 (N.D.Ill. June 17, 2015), granted ADT’s motion to dismiss the complaint with prejudice and in doing so, addressed some important issues involving contract interpretation, exculpatory provisions and damage limitations in home security contracts.

The 2007 alarm contract (the “Alarm Contract”) was for an initial three-year term and was automatically renewed for 30-day increments unless terminated in writing. The Alarm Contract contained a limited warranty and a waiver clause that provided that the alarm company was not an insurer against damage to the insured home.

Other than some basic warranties, ADT’s contract disclaimed consequential or incidental damages.

The court rejected the insurer’s argument that the contract’s damage waiver was unenforceable. In Illinois, an exculpatory clause or damage waiver is enforceable unless it is unconscionable or violates public policy. Since there were no public policy concerns implicated, the alarm contract damage waiver was upheld and defeated Allstate’s claims.

Allstate also lost its breach of implied warranty claim.  Illinois doesn’t recognize an implied warranty in service contracts. The only settings where a court recognizes an implied warranty is in (1) contracts involving the sale of goods, (2) contracts involving residential property construction (where the implied warranty of habitability attaches) and (3) construction contracts – where Illinois recognizes an implied warranty of performance in a good, workmanlike manner.

Since the Alarm Contract didn’t involve the sale of goods and wasn’t a construction contract, Allstate’s implied warranty claim failed.

Lastly, the court discarded Allstate’s consumer fraud claim.  The Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/2 broadly prohibits unfair methods of competition and unfair or deceptive acts.  But where a consumer fraud claim simply duplicates a breach of contract claim, the consumer fraud count is redundant and should be stricken.

A plaintiff can’t “dress up” a garden-variety contract claim as one sounding in fraud.  Here, since Allstate repackaged its breach of contract suit and labeled it as a consumer fraud claim, the court dismissed Allstate’s ICFA claim.

Key take-aways:

1/ A clear waiver provision in a service contract will be enforced as written; even if it puts some financially harsh consequences on the plaintiff;

2/ Service contracts won’t give rise to an implied warranty claim in Illinois;

3/ A breach of contract does not equate to consumer fraud.  A repackaged breach of contract claim that is appended with a consumer fraud label will be dismissed as redundant (to the parallel breach of contract claim).

Reference: http://law.justia.com/cases/federal/district-courts/illinois/ilndce/1:2014cv09494/303656/21/

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.