KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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alarm dealer can still get in trouble even with K&K Contract
July 28 2023
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alarm dealer can still get in trouble even with K&K Contract
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Ken:
Even using the Kirschenbaum All-In-One contracts, alarm dealer can still get in trouble. Consider this very fresh case from Southern California:
Residential Subscriber contracted with a local independent alarm Dealer to take over his existing system, install a new control panel and to provide alarm monitoring service, with cell-network communication pathway, and remote-control mobile APP. Subscriber's spacious home is in an upscale community, where police response is usually quite prompt. Subscriber signed Dealer's Kirschenbaum All-In-One "Standard Residential Security Agreement" © 2018.
Dealer is owned by seasoned long-time alarm folks, is State licensed, uses current Kirschenbaum contracts, installed top-tier equipment, uses a competent third-party monitoring station, and has E&O insurance from one of the industry's leading carriers.
Just a few months later, Subscriber's residence was burglarized. The alarm system activated on-site, however no alarm signal was received at the monitoring station or upon Subscriber's mobile APP, therefore neither police nor Subscriber were notified, and neither responded. Subscriber suffered a significant $6-figure burglary loss, as his heavy safe was ripped from the wall and dragged from the home.
Subscriber made a claim against the Dealer. Dealer and Dealer's insurer both cited the All-In-One's $250 limitation of liability provisions, and denied Subscriber's claim. Subscriber lawyered up, retained a California-based alarm failure expert, and, following filing of a lawsuit, a complaint to the State licensing board, and a round of discovery, Dealer's insurance carrier offered a $6-figure sum to settle.
The State license board could take further action, possibly other State agencies as well. Insurer will carefully consider whether to renew coverage for the Dealer. Monitoring station will likely review its procedures.
What happened?
Dealer's sales rep was not State licensed, as is required in California.
Dealer failed to test the newly installed equipment to ensure that signals would actually be received at the monitoring station. Likely, the Dealer explained, due to a programming error. As a result, the monitoring station never received any signals, ever, from the system, neither at the time of installation nor at any later time.
And, most critically, Dealer failed to provide the required Three-Day Right to Cancel Notice to the residential Subscriber. And, due to Subscriber's age (65+), the notice should have been Five-Day instead.
So, several months after the burglary loss, the Subscriber simply cancelled, as was their right, the Kirschenbaum All-In-One Agreement, along with all of its carefully crafted limitations of liability, leaving the Dealer with no contractual protection.
There are some expensive lessons here...
More in this vein: Long time readers of these articles may recall that several years ago, likewise in Southern California, a similar thing happened to Westxxx Security, whose Subscriber Agreement was tossed out due to inadequacies of the Three-Day Notice, leading to a $2.4M+ jury verdict.
Anon in California
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Response
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We cannot learn too much from this case because the alarm company’s insurance carrier, according to you, settled. I have no idea if there were adverse decisions during the case that caused the carrier to assess its risk and decide to just pay the claim [assuming your reporting is accurate].
I am not so sure that the failure to comply with the 3 day notice of cancellation and the subscriber’s subsequent recession of the contract resulted in losing all benefits of the contract. While I suppose that could be possible, it is also possible that a court will not permit the subscriber to sue on a contract that the subscriber is claiming it rescinded.
From the facts above it’s more likely that the carrier looked at the facts and considered that the trier of facts [a jury or a judge, if the contract was not to be enforced] could find that the alarm company was grossly negligent because it never tested the communication of the system. Keep in mind there would also have to be a finding that this communication failure was in fact a contributing factor to the loss. I am mindful of an old alarm case where California court basically held that a subrogation carrier could not pursue an alarm company for alarm failure, but the details escape me now.
My take away of this is that you must use proper contracts and you must be sure to have the contract properly executed.
What should be of more concern to the alarm industry is the changing attitude of alarm insurance E&O carriers who are now much more willing to pay claims rather than defend cases and protect the alarm industry. Subscribers all carrier insurance and all policies have subrogation provisions. What do you think a case like this does to an insurance company’s subrogation department and the attorneys who represent the subrogation carriers? Well, it encourages more claims and lawsuits. That will cost the alarm dealers more in premiums to pay for defense costs and actually damages paid. It’s a perpetuating cycle that only gets worse.
From the facts presented it’s clear that the alarm dealer was negligent in failing to test the system. It also violated Ca licensing law by not licensing the sales person, but that is a licensing issue, not liability issue in the case.
I guess there may be more information on the matter but it doesn’t seem like I would have handled this defense in this manner I would not have suggested settlement [unless there are other facts I am not aware of].
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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