Question:
Ken-
We recently purchased your monitoring and service agreement for replacement
of our previous contracts. At this time, we have sent new contracts to our
entire customer base to provide continuity of current contracts. I have
been interested to find the following items present stumbling blocks for
about 5% of our customers. I would appreciate if you could speak to the
importance of their inclusion.
1. Exclusive Remedy
2. Insurance (Additional insured aspect)
3. Exculpatory Clause
4. Third Party Claims
Although our previous contract contained some similar items, I am seeing
customers exclude all of these items. We have chosen not to accept these
customer revisions, and are settling for continuing on with the contract we
had on file. How do we handle these customers, without canceling their
service? Is there an acceptable way to continue using a pre-existing
contract rather than deal with their exclusions on the new contract?
I appreciate your assistance in this matter.
Louise E. R
Business Manager
Superior Alarm
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Answer:
The standard alarm contracts are designed to protect you from
liability, comply with existing legal requirements, build your recurring
revenue and increase and stabilize the value of your business. Though each
of the contract provisions have been carefully selected, worded and placed
in the contracts, not all provisions are off limits to changes or omission.
These contracts are designed to help, not hinder, your business. Of course
it's helpful if you understand your contracts and why the contracts read as
they do. Marketing and selling these contracts can be approached in
different ways by your sales personnel. They can claim not to know or
understand anything about the contract terms, merely suggesting that the
subscriber read the contracts, or they can explain the contract terms, in
which event they must still tell the subscriber that it's the subscriber's
responsibility to read and understand the contract terms.
The Exclusivity provision is a defense remedy, primarily in regards to
warranty issues. You can modify this provision to the extend that you
understand your modification. For example, you can limit replacement parts
to new as opposed to used.
Additional Insurance:
There are two insurance provisions. Neither are essential and you can agree
to omit them. One requires the subscriber to insure your security equipment
[this is where you retain ownership, as in a lease]. The other insurance
clause is an insurance procurement clause that requires your subscriber to
get insurance and add you as an additional insured. Rarely do subscribers
comply with this provision. It's a protective provision that is not
necessary as long as you keep other protective provisions.
Exculpatory clause
This provision cannot be changed, except you may agree to the following:
alarm company will be liable for any property damage caused by its
employees while on subscriber's premises." If you are in a state that will
not enforce the exculpatory clause if there is gross negligence then you
can exclude that from the clause as well.
Third Party claims
Your contract is with your subscriber and you want to exclude claims by
third parties who may have property on your subscribers premises or who may
be on your subscriber's premises. A waiver of subrogation will be
enforceable. Other third party claims will be hard to stop since you have
no contract with the third party, but courts generally recognize that your
contract does not benefit third parties, and that limits their rights to
sue you. There are too many factual patterns to address here, but you do
want to retain the no third party language in your contracts.
You will find that most subscribers do not take the time to read the
contracts, much less understand them. If you have an important subscriber
it may be appropriate for you to engage counsel to explain the contract
terms and significance to the subscriber or its counsel.
One thing you can be confident in representing is that the contract terms
have been selected after careful consideration and most provisions have
survived judicial scrutiny and have been enforced.