Should You Settle When a Suit Is Brought?
Lawsuits against alarm companies are not new and no doubt have been around since the most rudimentary alarm system was installed in a town or city that had at least two practicing lawyers. Despite contract language that should discourage all but the most adventurous litigants, lawsuits against alarm companies are driven by the subscriber’s (or often their insurance company) claim that the alarm system is designed and intended to prevent loss.
Thus burglar alarms, fire alarms, temperature control, access control, personal emergency response, medical alert, water flow, etc., are all systems that have for one reason or another been present when a loss nevertheless occurred. Undeterred by strong contract terminology, including exculpatory clauses, limits of liability, liquidated damages and waiver of subrogation provisions, lawsuits are commenced seeking recovery from whatever pocket is available.
The alarm industry recognized early on that its exposure for a loss could be enormous and not justified by the cost of the alarm system or alarm services. Contractual language insulating the alarm company from liability, even for its own negligence, became common.
Alarm companies and the insurance companies that insured the alarm industry came to rely upon these contractual provisions. The insurers estimated the cost of doing business based upon a realistic reliance that the contract provisions would indeed insulate the alarm company from unanticipated exposure suffered by the subscriber. Neither alarm companies, nor their insurance carriers, factored in the cost of restoring a building, replacing all inventory in a business or personal effects in a home, or someone’s personal safety, when calculating the cost of installing, monitoring and servicing an alarm, or insuring an alarm company.
Additionally, because the reality of the relationship between alarm companies and their subscribers is so well expressed in a properly worded alarm contract, courts in all states recognize the fundamental justification of the contractual protective provisions. They therefore enforce these provisions, finding them consistent with public policy or permitting alarm companies to offer their services at affordable rates to the public.
Why then do we see so many lawsuits against alarm companies settled? Don’t these settlements just encourage more lawsuits?
Most alarm cases are handled by the insurance companies. These companies are generally more concerned with weighing the risks involved in the case (likelihood of a successful plaintiff’s verdict and size of potential award) and economics of providing the defense for the case rather than focusing on what impact the settlement may have in encouraging more and more future cases. Alarm companies shouldn’t be surprised.
Insurance companies are not in the alarm business, and not all of them stick around to insure the alarm industry. Some of the ones that do are often large carriers that pay claims as a matter of course of business without thinking about future consequences. On the other hand, hard facts make bad law. That means that when the facts are particularly against the alarm company, the damages potentially high and the cost of litigation looking to be expensive, settlement may very well be in the best interest of the carrier, the alarm company and the alarm industry.
Keep in mind that a well publicized settlement is not likely to have the same impact as a well publicized decision against the alarm company, which will not only set bad precedent but also encourage more lawsuits.
The bottom line is that some cases should be settled, but only after very careful consideration as to why the contractual protection cannot be enforced. The starting point in every case should be that the case should be defended and the exculpatory clause, limitation of liability or other protective provision enforced.
Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. 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.
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