Question:           

Ken,

We have several thousand monitored accounts and over the years our monitoring contract language and areas of protection has changed. Our E & O and limitations of liability has always remained the same. We have previously used your services for obtaining a monitoring contract and we included some provisions of your agreement that ours did not contain.

My question is: if our contract has evolved over the years, and those customers that have been with us for a long time do not have an update contract, what protection do we have with these customers? Again, the major elements of the agreement are intact, it is more along the lines of changes in language regarding means of communication (now there are VoIP concerns and our new contract addresses this).

I hope that we do not need to obtain a new contract every time we change something in our contract. Or, can we send a written notice within their invoice envelope notifying the customer that certain elements have changed.

Thanks for your help in this question.

Jay T. Hunt

President

Allied Fire & Security 

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Answer:

    The downside to long term contracts, especially those with renewal clauses, is that they can become stale.  Stale in the sense that the terminology may not have kept up with evolving technology, or even the equipment that has been installed to replace original equipment.  In some cases new laws may render contract provisions unenforceable.

    You are correct that one of the staple provisions of the contract that has not seem much if any change is the limitation of liability clause.  There are other defense provisions that also so well settled that there has been virtually no change, such as the waiver of subrogation provision and the exculpatory clause.  Since your primary concern, though not your only concern, should be protecting your company from liability, the industry is fortunate that these protective provisions have not changed.  Therefore older contracts continue to effectively protect your company.

    There can be changes in the law that require upgrades to your contracts so that you are not in violation.  While no new legislation is likely to penalize you for contracts already executed, you may find enforcement after the legislation difficult or impossible. 

   Not only statutes but prevailing practices can also render your contract obsolete.  One example is the use of the acceleration clause in the contract.  That provision held that if the subscriber defaulted the entire balance of the contract became due.  That clause became increasingly more difficult to enforce here in NY, so we switched to a liquidated damage clause, which holds that in the event of default the alarm company can recover 80% of the balance of the contract.  The liquidated damage clause is more readily accepted by the judges, at least here in NY.

    But watch for legislation that requires changes.  In Connecticut a law has just been brought to my attention that the liquidated damage clause needs to be have a bold heading and other requirements.  This necessitates a change to the contracts with that provision.

    So while you don't need to automatically assume that your contracts need updating, you do need to pay attention to that possibility.  I caution clients not to print more than one year supply of contracts so they will be less hesitant to upgrade.  As far as existing subscribers under contract, try not to rely upon the renewal clause -- get a new contract signed a year before the original term is up.  That should be a good practice implemented immediately.

    On a more positive note, even contracts that are many years old, provided they have not expired, should contain sufficient protective provisions to protect you against liability. Of course that assumes the clauses were properly written in the first place.  Another good idea - get my contracts; keep them updated, and use them.