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TRAVELERS INS. CO. v. SCM CORP.

December 21, 1984

THE TRAVELERS INSURANCE CO., Plaintiff,
v.
SCM CORPORATION, et al., Defendants



The opinion of the court was delivered by: HOGAN

 This diversity action for damages arises from a June 19, 1980 fire which resulted in damage to real property owned by 13th & E Street Associates and insured by plaintiff, Travelers Insurance Co. ("Travelers"). According to the allegations of the complaint, the fire originated with a coffee maker manufactured by defendant SCM Corporation ("SCM"). Travelers seeks recovery from SCM on a variety of legal theories including strict liability, express warranty, implied warranty, and misrepresentation.

 Travelers has also joined Wells Fargo Alarm Services ("Wells Fargo") as a defendant alleging that the malfunction of an alarm system installed by Wells Fargo allowed the fire to spread extensively and multiplied the damages. Chesapeake and Potomac Telephone Co. ("C & P") was joined on the theory that the negligence of C & P in transmitting Wells Fargo's alarm signal over its telephone lines also contributed to the damage.

 The complaint also names the United States Department of the Treasury ("Treasury Department") and the Bureau of the Mint ("Mint"), the lessees of the office space owned by plaintiff's insured, as well as two Mint employees, Cory Gillilland and Michael Burke. Plaintiff asserts that Gillilland and Burke negligently purchased and installed the coffee maker in violation of "regulations prohibiting the installation and use of employee owned electrical appliances in any Government occupied space." Amended Complaint at 11. Plaintiff also claims that the defendants' negligent installation and use of the coffee maker was a proximate cause of the fire. The liability of the Treasury and Mint allegedly arises from the "failure of the supervisors and managers to enforce the regulation . . . prohibiting the use and installation of said coffee maker." Id. at 18.

 SCM, Wells Fargo and C & P have filed cross-claims for indemnification and contribution against each other and the other defendants. The Treasury, Mint, Gillilland and Burke (the "Federal Defendants") have filed cross-claims against SCM, Wells Fargo and C & P. Several dispositive motions have been filed on a variety of grounds. Each of these arguments will be addressed separately below. *fn1"

 I. Wells Fargo's Motion For Partial Summary Judgment

 Wells Fargo has filed a motion for summary judgment on the grounds that the contract between Wells Fargo and 13th and E Street Associates contains a valid and enforceable liquidated damages clause. The contract provides in part that:

 
Wells Fargo shall not be liable for any of subscriber's losses or damages, irrespective of origin, to person or property, whether directly or indirectly caused by performance or nonperformance of obligations imposed by this contract or by negligent acts or omissions of Wells Fargo, its agents or employees.

 None of the parties to this lawsuit have filed any opposition to Wells Fargo's motion. In light of the clear and unambiguous language of the contract and the sophistication and bargaining power of the parties, the Court finds the contractual limitation of liability to be valid and enforceable. Wells Fargo's motion for summary judgment will be granted.

 II. C & P Telephone's Motion to Dismiss

 C & P has moved to dismiss on the grounds that District of Columbia Public Service Commission Tariff No. 201 ("Tariff") contractually limits its liability for any errors, omissions or defects in the transmission of telephone signals. This tariff provides that:

 
Liability of the telephone company for damages arising out of mistakes, omissions, interruptions . . . or defects in transmission . . . shall in no event exceed an amount equivalent to the proportionate charge to the customer for the service or facilities affected during the period such mistake, omission, interruption or defect in facilities continues after notice and demand. . . .

 According to C & P, this tariff has the "force of law" and precludes recovery for any damages arising from its allegedly negligent failure to transmit Wells Fargo's alarm signal. Plaintiff and cross-claimants argue that the tariff is a mere contractual limitation on recovery and that it is possible to construe the complaint to allow third parties to recover. See Conley v. Gibson, 355 U.S. 41, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 Plaintiff, joined by the Federal Defendants, suggests that C & P is construing the tariff too broadly. According to plaintiff, the tariff limits the telephone company's liability to its "customers," but does not provide "blanket protection against liability to third parties." The parties agree that the service contract in question was voluntarily entered into by Wells Fargo and C & P, and that C & P's liability to Wells Fargo is thus limited by the tariff. However, plaintiff suggests that the tariff should not be construed to preclude C & P's liability to third parties -- such as plaintiff and cross-claimants -- to whom C & P owes a duty of due care. In essence, plaintiff argues that it should not be bound to the terms of the tariff because the tariff is part of a contract between C & P and Wells Fargo, to which plaintiff is not a party. This argument has some initial appeal.

 Upon closer examination, however, it appears that plaintiff's argument is flawed in several respects. First, the Court has examined the cases cited by the parties without finding any suggestion that a distinction should be made between a utility "customer" and a "third party." On the contrary, the relevant precedents speak in quite broad terms of the need to limit the liability of the public utilities. See e.g., Willhite v. South Central Bell Telephone Co., 693 F.2d 340, 343 (5th Cir. 1982); Pilot Industries v. Southern Bell Telephone & ...


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