February 23, 2011

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Question

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Hi Ken

    In the past the subscriber arranged for their own communication medium, typically POTS, and our contracts clearly stated we weren't responsible for failure of the communication medium, which is understandable since we were not charging them money for it. It was a transaction exclusively between the subscriber and their phone service provider.

    Now most of us are providing cellular service and charging money for it. Does this not add any liability to our operation? Is there anything that should be included in the contract as we are now providing the communication medium and charging for it, at least as a broker? Do your contracts provide adequate coverage for this or do we need to add a clause?

Lenny

5 Star

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Answer

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    This is a real concern for the alarm industry as the mode of communication migrates from POTS to digital to cellular to radio, private and public.  The Standard Form Contracts that address communication uniformly provide that communication networks that are beyond the control of the contracting alarm company [whether it be the dealer or central station] are not the responsibility of the alarm company.  The several protective provisions in the contract, such as exculpatory and limitation of liability clauses, would theoretically provide defense protection if the alarm failure is attributed to network communication failure.

    Of course those same protective provisions also provide defense against claims of human error and equipment failure.  But as we all know, some cases against alarm companies do prevail, though in most of these cases its a deficient contract or deficient legal defense strategy.  It stands to reason that an alarm company would not be held accountable for a communication error or breakdown within the communication network, and it should not matter if its POTS, digital, fiber optics, Internet or radio, unless of course the alarm company did own the communication network.

    So let's address the issue with two different scenarios:  Charging for communication and owning the network.

    If you are only charging for providing the communication I do not see any additional exposure for liability, other than a reasonable standard in your selection of that communication.  Any acceptable mode would be sufficient.  Obviously you can't chose Internet if the premises has no electricity [I assume that's correct]. 

    But with private radio networks or privately owned cellular towers [if there are any] you would have the additional responsibility to maintain those networks in working order.  Your contracts would need to address the additional service and extend the protective provisions familiar in all alarm contracts.

    Unless you are the owner of the network the existing Standard Form Contracts should be fine.  Those of you providing a communication network, you'll need new contracts.  And, yes, we have them.