There is a reason the exculpatory clause is in every alarm contract. The right to contract away liability for your own negligence is recognized and enforced in all jurisdictions and has a firm public policy basis. Educating yourself and your subscribers (their lawyers and insurance brokers too) is essential for conducting the most important aspect of your business — selling RMR contracts.
The exculpatory clause is not the only protective provision in a properly drafted alarm contract, but one of several that convey the relationship of alarm company and subscriber, at least from the alarm company’s perspective. The inherent conflict between the two is the alarm company intends the system to be a deterrent and the subscriber sees it as a preventative measure. Thus, when there is a loss the alarm company shrugs and the subscriber (more often it’s the insurance company) points a finger and seeks compensation.
The exculpatory clause is not some obscure item buried in the alarm contract. If it is, it’s not likely to be enforced. So keep it simple and clear. More importantly for your own edification, don’t be shy about the exculpatory clause or ambiguous in its meaning when clarification is sought or challenged by the subscriber, counsel or anyone else.
Especially in conjunction with other protective provisions, the clause makes it crystal clear that the alarm company is not the subscriber’s insurer, the alarm system is not intended to prevent loss, the alarm company will not be responsible for loss, and the subscriber, not the alarm company, should insure against loss. It also defends the alarm company if anyone else should make a claim due to a loss the alarm system was installed to detect.
As much as it may seem harsh or one-sided, it’s the nature of the contractual relationship and there is every reason the subscriber should be aware of it. The main reason is if the contract language is vague, obscure, hard to find or read, so entangled in legalese that even a judge would have trouble understanding or following its meaning, then don’t expect it to be enforced. Don’t lose sight of the legal fact that you are always dealing with the “least sophisticated consumer,” no matter how smart you or the subscriber thinks he/she is.
It’s important to understand why public policy supports the exculpatory clause. First, parties are (still) free to fashion their own contracts (that right, by the way, is in the U.S. Constitution and, I must say, seems to have eroded significantly since originally adopted). Second, alarm companies do not intend to insure against loss and certainly do not intend to pay for losses. Third, the extent of exposure is unpredictable and unlimited in nature, as well as completely disproportionate to the amount charged for the alarm services. Insurance coverage would be based on different criteria and cost significantly more. Finally, alarm companies do not intend to assume the risk of an insurer nor that the alarm system prevents any loss from events it was installed to detect.
Limitations in alarm systems, subscriber budgets, technology in the alarm equipment and the communication pathways, human error, and the unlimited exposure all militate against alarm companies being held responsible for losses. Additionally, courts have reasoned that the exculpatory clause (and other protective provisions) serves to keep alarm service cost down, thereby permitting the alarm industry to serve the public for affordable rates.
So rather than shy away from or be embarrassed by the terms of your alarm contract, embrace those provisions and explain to your subscriber why they are in the contract. Further, point out that since the subscriber has read and recognized the contract provisions, the pact has obviously succeeded in its purpose of clearly explaining the alarm company-subscriber relationship and the allocation of risk for loss.
Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. (www.kirschenbaumesq.com). His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.
The opinions expressed in this column are not necessarily those of SSI, and not intended as legal advice.