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Question
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Ken
We again and again see the following term in all contracts. I understand the purpose for it but what is confusing is why the option to increase the liability offered? Is it a required thing? If someone wishes to pursue this option... How should it be funded? How do I do this in a manner that makes business (profitable) sense? If I were to simply eliminate it and make no offer for a higher limit, would that be some sort of violation of some unknown law of contract?
LIMITATION OF LIABILITY: Lessee agrees, that should there arise any liability on the part of ** as a result of **’s negligent performance .........................................., that **’s liability shall be limited to the sum of six times the monthly payment at time liability is fixed or the sum of $250.00, whichever is greater. If Lessee wishes to increase **’s maximum amount of **’s limitation of liability, Lessee may, as a matter of right, at any time, by entering into a supplemental contract, obtain a higher limit by paying an annual payment consonant with **’s increased liability. This shall not be construed as insurance coverage.
Thank You
Zubinell
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Answer
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Fortunately the courts in all states enforce a limitation of liability provision in a properly worded alarm contract, though begrudgingly. It's not uncommon to see in a court decision, especially at the lower level courts, that the judge is "constrained" to enforce the limitation of liability clause. What alarm companies need to be mindful of is that the limitation of liability clause will not be enforced under all circumstances, and will not be enforced if not properly written. The Standard Form Contracts have the language you can rely on.
So why the right to increase the limitation? Good question. The limitation of liability clause, if not originating in the 1800s with the advent of public transportation, was quickly adopted and tested by the transportation and then public utility companies. While the courts didn't want to deny the limited liability, it did carve out a few rules, including the right of the public to pay to increase the limitation. When the alarm industry came along and sought to avail itself of the limitation of exposure the courts quickly imposed the same condition, that an increase be permitted.
Long time ago the question came up - how does the subscriber actually get the increased limitation. We had the contract provision but no alarm company actually had any paperwork that could be used to document the increase. I addressed that issue by including a provision in the Supplement Rider we provide with the Standard Form Contracts that is used for, among other things, the increased limitation.
As a practical matter there are really very little guidelines to help you figure out how to price an increased limitation. The provision does have its own built in increase by using the 6 times formula. Reasoning that 6 times the monthly payment is too expensive formula to accomplish the increased limitation, subscribers often ask for a price for the increase, sometimes asking for millions of dollars, other times seeking a limitation equal to the contract price being paid. If the requested increase is something like $1000 or even several thousand dollars, that's a business decision you can make; it may be an acceptable exposure. If however the request seeks a limitation that is essentially no limitation then your response, other than "no way and so long" is that you will be happy to obtain an insurance policy for the limits requested and that will be the additional amount you want for the increased limitation. The subscriber should immediately figure out that it already carries insurance and doesn't need to pay for it twice.
Another explanation that goes hand in hand with the increased limits is why there needs to be limits at all, and why should it cover the alarm company's negligence or failure to perform. Another good question, and one frequently asked of the alarm salesman. The answer is rather simple, and I suggest you use it rather than get into a heated debate or overly complex explanation.
The alarm system design is itself limited by the subscriber's budget, and far more equipment and security services are always available. The Disclaimer Notice should have already been placed on the table [or tablet] for view and signing. Alarm companies charge rates that are consistent with the services provided, but not commensurate with the exposure that a subscriber may suffer if a loss occurs. The alarm system in a barber shop may be similar in design and price as one in a jewelry store, yet the potential for loss should there be a burglary is not equal. Alarm prices are based on the equipment and services, not the value of a building, the contents within, or the possibility of personal injury to those on the premises or relying upon the alarm services. Alarms are designed to detect, not prevent loss, and alarms are almost without exception never the cause of a loss, just a measure to deter loss that did not, for whatever reason, prevent the loss. Since alarm service is not a substitute for proper insurance coverage the subscriber is wise to carry appropriate insurance coverage.
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Sonitrol Verified Electronic Security. Annual convention March 22, 2014 at The Worthington Renaissance Fort Worth Hotel in Fort Worth, Texas.
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