July 19, 2011
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Question
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Dear Ken,
A couple of serious questions:
1. I have a customer who wants to do business with us. It's a small church but members who are lawyers and Insurance agents told them not to sign the contract mainly because of the exculpatory clause..
Do all the other provisions of your contract protect me sufficiently without that clause; and of course I'm insured.
2. To be fair it seems some of my customers balk at signing because it seems one sided in our favor. Some just want the contract to be fair saying if we do something wrong we will take responsibility vs. we aren't even responsible for our own negligence. Is there some language I can use to that effect you can provide me?
Stay Safe,
Stuart Rosenberg ME, CET, President
Philadelphia Detection Systems Inc.
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Answer
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The law [in all jurisdictions, presently] permits alarm companies, by written contract, to insulate themselves from liability for subscriber losses, even if allegedly caused by the alarm company's negligence or breach of contract. Yes there are some exceptions and yes judges are loath to enforce the clause, but nevertheless, you would be foolish to conduct your alarm business without availing yourself of this protective provision.
There is a reason that the Exculpatory Cause is in every alarm contract. The right to contract away liability for your own negligence is recognized and enforced in all jurisdictions and has a firm public policy basis. Educating yourself and your subscribers [their lawyers and insurance brokers too] is essential so that you can conduct the most important aspect of your business, which is selling RMR Contracts. I hope this doesn't surprise you, and if it does, then give your business model a little more thought.
The Exculpatory Clause is not the only protective provision in a properly drafted alarm contract, but one of several which conveys the relationship of alarm company and subscriber, at least from the alarm company's perspective. As you know, the inherent conflict between alarm company and subscriber is that the alarm company intends the system to be a deterrent and the subscriber intends it as a preventative measure. Thus, when there is a loss the alarm company shrugs and the subscriber [more often its insurance company] points a finger and trys to recover the loss.
The Exculpatory Clause is not some obscure clause buried in the alarm contract. If it is, it's not likely to be enforced. So keep it simple and clear. More importantly for your own edification, don't be shy about the Exculpatory Clause or ambiguous in its meaning when clarification is sought by the subscriber or challenged by the subscriber, its counsel or broker or anyone else. One of the characteristics of the Standard Alarm Contracts that I am particular proud of, is their clarity. The Exculpatory Clause, especially in conjunction with the other protective provisions, make it crystal clear that the alarm company is not the subscriber's insurer, that the alarm system is not intended to prevent loss, that the alarm company will not be responsible for loss, and that the subscriber, not the alarm company, should insure against loss and will also be responsible for defending the alarm company if anyone else should make a claim against the alarm company because of a loss which the alarm system was installed to detect. Yes, that's mouth full, but as much as it may seem harsh or one sided, it's the very nature of the contractual relationship and there is every reason the subscriber should be aware of it. The main reason is that if the contract language is vague, obscure, hard to find or read, so entangled in legalize that even a judge would have trouble understanding or following its meaning, then don't expect it to be enforced. Don't lose sight of the legal fact that when dealing with consumers [as opposed to commercial subscribers] you are always dealing with the "least sophisticated consumer", no matter how smart you, or the subscriber, thinks he or she is.
I mentioned public policy supporting the Exculpatory Clause and it's important that you understand why. First, parties are [still] free to fashion their own contracts [that right, by the way, is in the US Constitution and, I must say, seems to have eroded significantly since originally adopted]. Second, alarm companies do not intend to insure against loss and certainly do not intend to pay for losses. Third, the extent of exposure is unpredictable and unlimited in nature, as well as completely disproportionate to the amount charged for the alarm services; insurance coverage would be based on different criteria and cost significantly more. Finally, alarm companies do not intend to assume the risk of an insurer, do not intend that the alarm system prevent any loss from events that the alarm system was installed to detect. Limitations in alarm systems, subscriber budgets, technology in the alarm equipment and the communication pathways, human error, and the unlimited exposure all militate against alarm companies being held responsible for losses. Additionally, courts have reasoned that the Exculpatory Clause [and other protective provisions] serve to keep alarm service cost down thereby permitting the alarm industry to serve the public for affordable rates.
So rather than shy away from or be embarrassed by the terms of your Alarm Contract, embrace those provisions, explain to your subscriber why they are in the contract, and further point out that since the subscriber has read and recognized the contract provisions the contract has obviously succeeded in its purpose of clearly explaining the alarm company - subscriber relationship and the allocation of risk for loss.