Find Legal Information

SIXTH DIVISION
January 18, 2002

JUSTICE O'MARA FROSSARD delivered the opinion of the court:

Plaintiffs Chicago Steel Rule & Die Fabricators Co. (Chicago Steel) and Travelers IndemnityCompany of Illinois (Travelers), as subrogee of Chicago Steel, brought this action against defendantsADT Security Systems, Inc., its successor corporation ADT Security Services, Inc. (ADT), and TycoInternational, Ltd. (Tyco), to recover damages resulting from a fire that occurred at a plant operatedby Chicago Steel. This case presents an issue of first impression as to whether an exculpatory clausein a contract between two commercial parties can preclude one of the commercial parties frombringing property damage claims based on strict products liability.

On the date of the fire, ADT maintained a fire alarm system that it had previously installedat the Chicago Steel plant. Plaintiffs alleged that the failure of the alarm system and/or ADT's failureto maintain and monitor the system caused a delay in notification to the Chicago fire department andresulted in substantial property damage. Their complaint included four counts: (1) strict productsliability; (2) breach of contract; (3) negligence; and (4) gross negligence. The plaintiffs allegeproperty damage to property other than the alleged defective product (other property). Tyco, ADT'sparent company, was never served with process and is not a party to this appeal. ADT filed a motionto dismiss plaintiffs' complaint, based in part upon an exculpatory clause contained in its fire alarminstallation and maintenance contract with Chicago Steel which released ADT from futurenegligence, breach of contract, and strict liability claims. The trial court granted ADT's motion, butgave plaintiffs leave to amend the gross negligence count included in their complaint. Plaintiffs didnot amend that count, and the trial court subsequently entered an order pursuant to Supreme CourtRule 304(a) (155 Ill. 2d R. 304(a)) finding that its prior dismissal order was final and that there wasno just reason to delay its enforcement or appeal. Plaintiffs now appeal the dismissal of their strictliability, negligence, and breach of contract counts, contending that the exculpatory clause wasunenforceable.

BACKGROUND

On July 16, 1997, Chicago Steel entered into a contract with ADT pursuant to which ADTagreed to design, sell, install and/or maintain a fire alarm system, and provide fire alarm monitoringand reporting services for Chicago Steel's plant at 6630 W. Wrightwood Avenue in Chicago. Underthe terms of the contract, ADT was to maintain the fire alarm system and inspect it four times peryear. Chicago Steel was to pay ADT $3,472 annually.

The contract stated ADT was not an insurer and would be exempt from liability for damageto property, whether based on breach of contract, negligence, or strict liability. The contract alsocontained a limitation of damages clause limiting any liability on ADT's part to the greater of 10%of the annual service charge or $1,000. The contract, however, gave Chicago Steel the option to payfor an allocation of additional liability to ADT. The record reflects that Chicago Steel did notexercise that option.

On January 2, 1999, following the alarm system's installation, a fire occurred at theWrightwood plant, causing substantial damage to property located there. Chicago Steel submitteda fire damage claim to Travelers, its insurer. Travelers paid the claim and thus became the subrogeeof Chicago Steel.

In December 1999, plaintiffs filed their complaint against defendants. The strict productsliability count alleged that the alarm system was defective and unreasonably dangerous, failed todetect fire in the Chicago Steel plant, failed to adequately monitor water flow in the automaticsprinklers located in the plant, failed to signal ADT to notify the Chicago fire department of the fireand was otherwise inadequately designed, manufactured, sold, installed or maintained by ADT. Thebreach of contract count and negligence counts both alleged that ADT "failed to design, manufacture,sell, install and/or maintain a system that would adequately detect fire," failed to adequately monitorwater flow in the automatic sprinklers, and failed to notify the Chicago fire department of the fireupon receiving an alarm indicating that the automatic sprinklers had been activated. ADT filed amotion to dismiss the complaint, contending that it failed to state sufficient facts to support its claimsand contending, pursuant to section 2-619(a)(9) of the Illinois Code of Civil Procedure (Code) (735ILCS 5/2-619(a)(9) (West 1998)), that the exculpatory clause in the subject contract constituted anaffirmative defense that barred plaintiffs' claims.

The trial court granted ADT's motion to dismiss, stating at the hearing on the motion that theexculpatory clause was a "good and proper exculpatory, arm's length agreement, [with] nothing tosuggest otherwise, [and] no claim of unconscionability." The court also stated that the exculpatoryclause "forms the predicate for the obligations of the parties." Based upon these findings, the trialcourt entered a written order dismissing plaintiffs' strict products liability, negligence, and breachof contract counts with prejudice pursuant to section 2-619(a)(9) of the Code.

ANALYSIS

Plaintiffs contend on appeal that the trial court erred by dismissing those three counts basedon its conclusion that the exculpatory clause was enforceable and therefore constituted a validaffirmative defense. Section 2-619(a)(9) allows dismissal of an action when "the claim asserted ***is barred by other affirmative matter avoiding the legal effect of or defeating the claim." 735 ILCS5/2-619(a)(9) (West 1998). Accordingly, we review the dismissal of plaintiffs' claims de novo asa matter of law. Kedzie & 103^rd Curency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 116-17 (1993).

Contractual provisions releasing parties from future liability, commonly referred to asexculpatory clauses or disclaimers, are not favored in Illinois and are strictly construed against theparty they benefit. Scott & Fetzer Co. v. Montgomery Ward & Co., 112 Ill. 2d 378, 395 (1986);Harris v. Walker, 119 Ill. 2d 542, 548 (1988). However, such a provision will be enforced if: (1) itclearly spells out the intention of the parties; (2) there is nothing in the social relationship betweenthe parties militating against enforcement; and (3) it is not against public policy. Harris, 119 Ill. 2dat 548; Scott, 112 Ill. 2d at 395. The rationale supporting enforcement in Illinois of such provisionsis the "broad public policy permitting competent parties to contractually limit their respectiveliability and to allocate business risks in accordance with their business judgment." Rosenstein v.Standard & Poor's Corp., 264 Ill. App. 3d 818, 826-27 (1993).

I. STRICT LIABILITY

Plaintiffs contend that the provision within the exculpatory clause precluding the strictliability claim for property damage is unenforceable because it violates public policy. Notably,plaintiffs do not argue on appeal that the language in the provision is ambiguous or reflects anythingother than the intent of the parties to preclude the strict liability claim. Indeed, the provision is clear. It specifically states "ADT shall be exempt from liability for loss, damage, or injury due directly orindirectly to occurrences, or consequences therefrom, which the service or system is designed todetect or avert" and states that this exemption shall apply if the loss or damage to property resultsfrom "performance or nonperformance of obligations imposed by this contract," "negligence," or"strict liability." Furthermore, plaintiffs do not argue that anything in their social relationship withdefendants militates against enforcement of this provision. Rather, relying primarily upon Sipari v.Villa Olivia Country Club, 63 Ill. App. 3d 985 (1978), plaintiffs argue that the provision in theexculpatory clause is against the public policy in Illinois of protecting the general public.

Illinois courts have held that contractual provisions precluding consumers from bringingstrict liability claims for personal injuries violate public policy. See Sipari, 63 Ill. App. 3d at 990-91;Haley v. Merit Chevrolet, Inc., 67 Ill. App. 2d 19, 30 (1966). However, our research indicates thatno Illinois court has addressed the issue of whether a contractual exculpatory provision violatespublic policy by precluding a commercial party to the contract from bringing a strict liability claimto recover for damage to "other property" i.e., property other than the allegedly defective product. In order to resolve this issue of first impression, we must first identify the public policy reasons thatmotivated this court in Sipari and Haley to preclude enforcement of strict liability disclaimers againstconsumers seeking to recover for personal injuries. Then we must determine whether those samepublic policy reasons would require precluding enforcement of strict liability disclaimers againstcommercial entities seeking to recover for damage to property.

In Sipari, a lessee of a golf cart brought a strict tort liability action against the lessor and thecart's alleged manufacturer for injuries he sustained when the cart overturned on him. Sipari, 63 Ill.App. 3d at 986. The defendant lessor argued that an exculpatory clause on the rental ticket relievedthe lessor from liability. Sipari, 63 Ill. App. 3d at 990. The court rejected the defendant's argument,reasoning that strict liability is imposed by operation of law as a matter of public policy for thepublic's protection and that "the one liable cannot contract away his own responsibility for havingplaced a defective product into the mainstream of public use." Sipari, 63 Ill. App. 3d at 990-91.

In Haley, a car driver and her passenger brought an action against the manufacturer of the car,the car dealer, and the tire manufacturer for injuries they sustained when the driver lost control ofthe car because of an allegedly defective steering column and allegedly defective tires. Haley, 67Ill. App. 2d at 23. The defendant car dealer argued that the terms of an express warranty given tothe plaintiffs precluded its liability and limited its obligation to repair or replacement of parts incertain situations. Haley, 67 Ill. App. 2d at 29-30. The court disagreed, holding that the warrantyprovision violated public policy. Haley, 67 Ill. App. 2d at 30. The court reasoned that to allow thedealer to limit, by contract, its tort liability for defects in a car to repair or replacement of defectiveparts would defeat the public policy reasons which motivated the supreme court to adopt the theoryof strict liability in tort for defective products in Suvada v. White Motor Co., 32 Ill. 2d 612 (1965). Haley, 67 Ill. App. 2d at 30.

In Suvada, the supreme court adopted the theory of strict liability in tort for defectiveproducts, as set forth in section 402A of the Restatement (Second) of Torts (1965). Suvada, 32 Ill.2d at 621. Strict liability under section 402A is imposed upon "[o]ne who sells any product in adefective condition unreasonably dangerous to the user or consumer or to his property." Restatement(Second) of Torts section 402A (1965). In Suvada, the supreme court concluded that in order torecover on a theory of strict liability in tort for defective products, plaintiffs "must prove that theirinjury or damage resulted from a condition of the product, that the condition was an unreasonablydangerous one and that the condition existed at the time it left the manufacturer's control." Suvada,32 Ill. 2d at 623. The policy reasons articulated in Suvada that motivated the supreme court to adoptthe theory of strict liability included: (1) the public interest in human life and health; (2) parties whoinduce the use of a product through advertising represent to the public that it is safe and should beliable for damage caused by that product; and (3) the justice of imposing the loss on the one creatingthe risk and reaping the profit by placing the product in the stream of commerce. Suvada, 32 Ill. 2dat 619. This principle has been interpreted to include "all persons in the distributive chain" of adefective product. Hammond v. North American Asbestos Corp., 97 Ill. 2d 195, 206 (1983).

The first public policy reason motivating the holdings in Suvada, Sipari, and Haley - thepublic interest in human life and health - reflects the public policy in Illinois of protecting thephysical health and safety of its citizens. Although the above decisions did not expressly state howenforcing clauses precluding strict liability claims would compromise the physical health and safetyof the public, their implicit reasoning is obvious. Permitting commercial entities to enforce suchprovisions against consumers would minimize their exposure to strict products liability arising frompersonal injuries and thus diminish their incentive to produce and introduce into the stream ofcommerce reasonably safe products. The supreme court, in a discussion of the policy considerationsunderlying the theory of strict liability in tort, has recognized the validity of this reasoning. SeeTrans States Airlines v. Pratt & Whitney Canada, Inc., 177 Ill. 2d 21, 38-39 (1997) (noting thatpossibility of strict products liability claims by consumers with personal injuries motivatesmanufacturers to create safe products; eliminating this possibility, through contract or otherwise,would diminish their incentive to build safe products and potentially threaten public safety).

The second and third policy reasons articulated in Suvada for adopting the theory of strictproducts liability and relied upon in Haley are that commercial entities should be held liable whenthey represent to the general public that their products are safe and then reap profit by selling unsafe products to the general public. That public policy aims to discourage commercial entities withsuperior bargaining power from shifting the risk of loss arising from unreasonably safe products toindividual consumers with inferior bargaining power. As the supreme court noted in Trans StatesAirlines, the adoption of strict products liability in Illinois was generated not only from safetyconcerns, but also from the concern that consumers and remote parties were not on equal footingwith the manufacturer or seller to bargain effectively for the allocation of risk. Trans States Airlines,177 Ill. 2d at 39.

The question before us is whether under a contract entered into between two commercialentities, enforcement of a strict liability disclaimer against one of the commercial parties to thecontract seeking to recover for damage to other property would be inconsistent with or violate publicpolicy. We conclude that allowing enforcement of the provision at issue would not violate publicpolicy. In the context of this case, we do not believe that enforcing an exculpatory provisionrelieving a commercial party to the contract from strict liability based on damage to other propertywould threaten the public's physical safety by diminishing the incentive to manufacture and/ordistribute safe products. Manufacturers and distributors would still be subject to strict productsliability actions brought by remote parties and individual consumers who suffered personal injuriesor property damage. Potential liability under such actions, in monetary terms, could be extremelyhigh. Therefore, the incentive to manufacture and distribute safe products would remain.

We do not believe that enforcement of exculpatory provisions barring commercial parties tothe contract with equal bargaining power from bringing strict liability claims for damage to otherproperty would conflict with a public policy concern which aims to ensure that third parties not inprivity of contract or consumers with inferior bargaining power are not forced to unwittingly acceptthe risk of loss arising from unreasonably safe products. As the supreme court has noted, this policyconcern is not implicated when commercial entities with equal bargaining power enter into a contractwhich clearly allocates the risk. Trans States Airlines, 177 Ill. 2d at 39.

Chicago Steel does not argue that it possessed inferior bargaining power when it entered intothe contract in question. Chicago Steel does not suggest that ADT was the only provider of alarmsystems or that ADT had a monopoly on alarm design, maintenance, and installation services. Theexculpatory clause itself stated that "if [Chicago Steel] desires ADT to assume greater liability, ADTshall amend this agreement by attaching a rider setting forth the amount of additional liability andthe additional amount payable by the customer for the assumption by ADT of such greater liability***." This language indicates that Chicago Steel had the option to further negotiate the risk of lossarising from damage to other property. The record reflects that Chicago Steel did not exercise thatoption. Chicago Steel is a commercial entity and there was no evidence of disparity in the bargainingpower of the parties to the contract.

Based on the facts of this case, we find that an exculpatory clause which specificallyprecludes strict products liability claims for damage to other property does not violate public policywhen (1) the parties to the contract are commercial entities of equal bargaining power; (2) it isinvoked against a commercial entity that is a party to the contract in question; (3) the exculpatoryclause is clear and unambiguous; (4) there is no evidence of fraud or duress; (5) there is nolegislative directive to the contrary; (6) there is nothing in the relationship of the parties militatingagainst enforcement; and (7) the damage at issue is to the other property of one of the commercialparties to the contract. Accordingly, we conclude that enforcement of the exculpatory provisionprecluding plaintiffs' strict liability claim does not conflict with the public policy rationale supportingthe holdings in Sipari and Haley and does not violate the public policies identified in those cases. We find Chicago Steel was not unjustly compelled to accept the risk of loss for damage to itsproperty. We hold that the exculpatory provision in the contract was enforceable and constituteda valid affirmative defense. We note that our holding is consistent with those of numerous otherjurisdictions. See, e.g., Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146, 149 (3dCir. 1974) (Pennsylvania law allows clearly expressed and freely negotiated waiver of strict liabilitybetween business entities of relatively equal bargaining strength); Idaho Power Co. v. WestinghouseElectric Corp., 596 F.2d 924, 928 (9th Cir. 1979) (disclaimer of strict liability between two largecorporations of equal bargaining power is enforceable); McDermott, Inc. v. Clyde Iron, 979 F.2d1068, 1076 (5th Cir. 1992), (contractual provisions waiving strict liability claims are enforceableunder New York law), rev'd & remanded on other grounds, 511 U.S. 202, 128 L. Ed. 2d 148, 114S. Ct. 1461 (1994); Leon's Bakery v. Grinnell Corp., 990 F.2d 44, 50 (2d Cir. 1993) ("a contractuallimitation of liability with respect to a device alleged merely to have failed to detect or impede firemay be enforced against a claim of strict liability" under Connecticut law); but see Sterner Aero ABv. Page Airmotive, Inc., 499 F.2d 709, 713 (10th Cir. 1974) (Oklahoma law prohibits disclaimer ofstrict tort liability, even in commercial transactions).

II. NEGLIGENCE AND BREACH OF CONTRACT

Plaintiffs next contend that the provisions of the exculpatory clause barring ADT frombringing negligence and breach of contract claims should not have been enforced because theexculpatory provisions are inconsistent with the public policy reasons articulated by the supremecourt in Suvada and thus violate public policy. In support of the public policy argument that ADTshould not be able to exculpate or limit its damages under the negligence or contract claims, ChicagoSteel relies upon Braden v. Honeywell, Inc., 8 F. Supp. 2d 724 (S. D. Ohio 1998).

In Braden, the plaintiffs contracted with Honeywell for the installation of a home fire andburglar alarm system. Braden, 8 F. Supp. 2d at 724. At issue was the application of an exculpatoryclause. Braden, 8 F. Supp. 2d at 726. Chicago Steel recognized that the Braden court in its analysisnoted the split in Ohio authority regarding the validity of contractual provisions waiving the rightto damages or limiting the amount of damages in alarm system contracts. Braden, 8 F. Supp. 2d at727-28. However, the Braden court found the exculpatory provision was unenforceable because itwould render the contract "manifestly unconscionable and unreasonable." Braden, 8 F. Supp. 2d at729. We find Braden distinguishable. The plaintiffs in Braden were individual consumers, notcommercial entities. Moreover, the equal bargaining strength of the commercial parties in this casetogether with the freedom of such parties to allocate risk of loss undermine the argument of ChicagoSteel that the Braden rationale should apply.

Here, the exculpatory provision was clear and explicit. The contract gave Chicago Steel theoption to pay for an allocation of additional liability to ADT. Chicago Steel chose not to exercisethis option. The record does not demonstrate an absence of meaningful choice by one of the parties. We find nothing unreasonable about the fact that the commercial parties of equal bargaining powerwere free to allocate the risk of loss by contract.

Moreover, we find instructive the Illinois cases which address exculpatory clauses thatpreclude negligence and breach of contract actions for damage to other property. In the context ofnegligence and breach of contract claims, this court has previously reviewed exculpatory provisionssimilar to the one in this case and found such provisions did not violate public policy. See, e.g., FirstFinancial Insurance Co. v. Purolator Security, Inc., 69 Ill. App. 3d 413, 417-18 (1979) (clause incontract for maintenance of burglar alarm system that precluded negligence and breach of contractactions for damage to other property did not violate public policy); North River Insurance Co. v.Jones, 275 Ill. App. 3d 175, 179-82 (1995) (clause limiting damages for negligence arising out ofthe performance of fire alarm installation and maintenance contract enforceable and not violative ofpublic policy). In determining whether an exculpatory clause was enforceable, this court reviewedwhether: (1) the terms in the clause were clear and precise; (2) there was evidence of fraud oroppression; (3) there was a legislative directive to the contrary; and (4) a special social relationshipof a semi-public nature existed between the parties. First Financial Insurance Co., 69 Ill. App. 3dat 417-19.

Our decision in North River Insurance Co., involved facts analogous to those in this case. In North River Insurance Co., a fire alarm service provider entered into a contract with the plaintiffs'insureds to furnish, install, and provide maintenance for a fire alarm system in a building where theinsureds' business was located. North River Insurance Co., 275 Ill. App. 3d at 176-77. The clauseat issue stated that the alarm service provider was not an insurer and would not be liable for anydamages to the insureds' property "'caused by performance or non-performance of obligationsimposed by this contract or by negligent acts or omissions by [the alarm service provider].' " NorthRiver Insurance Co., 275 Ill. App. 3d at 177. The contract also contained a limitation of damagesclause which provided that if the alarm service provider was found liable for property damage basedon breach of contract or negligence, its liability would be limited to $250. North River InsuranceCo., 275 Ill. App. 3d at 178. Although the contract gave the insureds the option to pay for anallocation of additional liability to the alarm service provider, they declined to exercise the option. North River Insurance Co., 275 Ill. App. 3d at 177.

After the alarm system was installed, a fire occurred at the insureds' business. North RiverInsurance Co., 275 Ill. App. 3d at 178. The plaintiffs brought a negligence action, alleging that thesystem failed to function during the fire and caused significant damage and loss to the insureds'property and its contents. North River Insurance Co., 275 Ill. App. 3d at 176. The trial court enteredsummary judgment in favor of the alarm service provider, ruling that the limitation of damagesclause was enforceable. North River Insurance Co., 275 Ill. App. 3d at 179.

On appeal, the reviewing court upheld the damage limitation. North River Insurance Co.,275 Ill. App. 3d at 180-81. The court emphasized the absence of legislation barring fire alarminstallation and monitoring companies from contracting for a limitation on damages occurring afterinstallation of their alarm systems. North River Insurance Co., 275 Ill. App. 3d at 180-82. Thecourt also noted that it had previously rejected the argument that there was something in the socialrelationship between alarm services providers and commercial entities who contract to receive theirservices which militated against upholding exculpatory provisions or damage limitation provisionsin their agreements. North River Insurance Co., 275 Ill. App. 3d at 181.

Like the contract in North River Insurance Co., the contract in this case provided that analarm service provider (ADT) was to install and maintain a fire alarm system on behalf of acommercial entity and included an unambiguous exculpatory clause precluding negligence andbreach of contract claims and limiting damages. Plaintiffs have not alleged evidence of fraud oroppression. and have not identified any statute enacted by the legislature in the wake of North RiverInsurance Co. reflecting an intent to preclude enforcement of exculpatory clauses similar to the oneat issue in this case. We recognize that the portion of the clause on appeal in North River InsuranceCo. was the damage limitation provision rather than an exculpatory provision barring negligence andbreach of contract claims. We note, however, that the rationale for enforcing both types ofprovisions is the same and the same criteria are applied when reviewing such provisions. See NorthRiver Insurance Co., 275 Ill. App. 3d at 180-82 (relying upon same factors and freedom of contractprinciples applied in First Financial Insurance Co., which upheld a provision in a burglary alarmsystem contract barring negligence and breach of contract claims).

Plaintiffs do make a policy-based argument that was not directly addressed in North RiverInsurance Co. They contend that enforcement of a negligence disclaimer in a fire alarm servicescontract affects not only the respective parties to the contract, but also the public at large. Plaintiffsargue that the failure of a fire alarm and monitoring system could result in an uncontrolled spreadof fire, causing significant loss of life and property. Implicit in plaintiffs' argument is the assumptionthat fire alarm companies that design, install, and monitor fire alarm systems will have a diminishedincentive to provide nonnegligent installation and monitoring services if they are able to minimizetheir potential liability by enforcing clauses barring negligence actions for damage to other property. Based on this reasoning, such a diminished incentive would increase acts of negligence andultimately threaten the physical safety of adjacent owners and their property. We disagree. Enforcement of negligence and breach of contract disclaimers will not give fire alarm installationand monitoring companies such as ADT a diminished incentive to perform their obligations underthe contract in a nonnegligent fashion. Such companies could still be exposed to negligence claimsby third parties who sustain personal injuries or damage to property. See Scott & Fetzer Co., 112Ill. 2d at 391. In Scott & Fetzer Co., a fire alarm service provider entered into a contract withMontgomery Ward (Wards) to install and maintain a fire warning system in a warehouse occupiedby Wards. Scott & Fetzer Co., 112 Ill. 2d at 382. The contract included an exculpatory provisionthat precluded the provider's liability " 'for loss or damage due *** to occurrences, or consequencestherefrom, which the service is designed to detect or avert.' " Scott & Fetzer Co., 112 Ill. 2d at 384. Following installation of the system, a fire began in the portion of the warehouse occupied by Wardsand spread to portions of the warehouse occupied by adjacent tenants. Scott & Fetzer Co., 112 Ill.2d at 382-83. The adjacent tenants brought a negligence action against Wards and the alarm serviceprovider alleging that their negligence caused the fire to spread into their portion of the warehouseand destroy their inventory. Scott & Fetzer Co., 112 Ill. 2d at 384-85. The trial court dismissed thecomplaint brought by the tenants, finding that their losses were purely economic and could not berecovered in tort. Scott & Fetzer Co., 112 Ill. 2d at 385-86.

On appeal, the reviewing court reversed the dismissal of the tenants' claims against the alarmservice provider, finding that the economic loss doctrine did not bar the tenants' action and that theallegations in the tenants' complaint were sufficient to establish that the alarm service provider oweda duty to them. Scott & Fetzer Co., 112 Ill. 2d at 386-87. The supreme court affirmed the reviewing

court's decision, rejecting the alarm service provider's argument that it did not owe a duty to theadjacent tenants to guard against the losses they sustained. Scott & Fetzer Co., 112 Ill. 2d at 387.

In support of its holding, the supreme court reasoned that where inspections relating to safetyare involved, " '[a] defendant's liability for the negligent performance of its undertaking *** extends*** to such persons as defendant could reasonably have foreseen would be endangered as the resultof negligent performance.' " Scott & Fetzer Co., 112 Ill. 2d at 389-90, quoting Nelson v. Union WireRope Corp., 31 Ill. 2d 69, 86 (1964). The supreme court additionally noted that the exculpatoryclause in the contract between Wards and the alarm service provider did not operate to bar or limitthe rights of the adjacent tenants. Scott & Fetzer Co., 112 Ill. 2d at 391. Like the alarm serviceprovider in Scott & Fetzer Co., ADT could be exposed to negligence claims by third parties not inprivity of contract who sustained injuries or damage to property as a result of ADT's negligence inmaintaining and monitoring the alarm system that it installed at Chicago Steel's plant. Therefore,enforcement of such disclaimers will not give alarm companies a diminished incentive to performin a manner which is not negligent.

CONCLUSION

Finally, we note that although the court in North River Insurance Co. only stated generallythat the principle of freedom of contract supported enforcement of exculpatory provisions in alarmsystem contracts (see North River Insurance Co., 275 Ill. App. 3d at 180), other jurisdictions havearticulated specific policy reasons that support enforcement of terms precluding or limiting theliability of alarm system companies. For example, the United States Court of Appeals for the SecondCircuit has reasoned:

"The supplier of [a fire alarm system] is paid for its equipment andservices, and the price does not generally include a sum designed toanticipate the possible need to pay the purchaser the value of theproperty that the system is to protect. The owner or custodian of theproperty is in a far better position than the alarm system seller toknow the property's value and to bargain with an insurance companyfor appropriate coverage and an appropriate premium, and, as theNew York Court of Appeals noted, the alarm seller's 'limitations onliability help keep alarm services affordable.' " Leon's Bakery, Inc.,990 F.2d at 49, quoting Sommer v. Federal Signal Corp., 79 N.Y.2d540, 554, 583 N.Y.S.2d 957, 962, 593 N.E.2d 1365, 1370 (1992).

We agree that property owners are in a better position than the alarm company to know thevalue of their property and bargain for appropriate insurance coverage. Freedom of contract allowscommercial parties to use their business judgment to exculpate claims for liability in exchange forlower cost. Under the type of exculpatory clause at issue in this case, requiring an alarm companyto assume the risk of loss for damage to the property of the other commercial party to the contract could lead to substantial increase in the cost of providing alarm services and potentially reduce thenumber of property owners who could afford such services. Such a result would obviously not bein the public interest.

For the reasons previously discussed, we affirm the judgment of the circuit court.

Affirmed.

GALLAGHER, P.J., and BUCKLEY, J., concur.