Security Dealer & Integrator

NOV 2018

Find news and information for the executive corporate security director, CSO, facility manager and assets protection manager on issues of policy, products, incidents, risk management, threat assessments and preparedness.

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22 Security Dealer & Integrator / www.SecurityInfoWatch.com November 2018 Legal Brief BY TIMOTHY J. PASTORE, ESQ. Lessons in Contracts How to use bargaining power intelligently to aid in the enforceability of a limitation of liability It was a big case: A company was at risk, and the damages were substantial, more than $5 million. It was a fire in a very large mansion with highly valuable contents – a total loss. The plaintiff alleged the alarm company was liable based on several theories, including faulty installation, service and monitoring. Luckily, the company had its “go-to” legal counsel defending the case: let’s call him “Jim” (wink, wink). “Jim” wanted to do everything he could do to defend his client. The enforceability of the limitation of liability provision in the governing alarm service contract was among the many issues in the case. What is it? In summary, a limitation of liability provision in a security services contract seeks to allocate the risk of loss to the security subscriber and its insurer by limiting the maximum liability of the security provider – even in the case of its own negligence. The amount of the limitation varies, but can be as low as $250. Courts around the country have upheld such provisions (although they do not always enforce them) on the theory that the subscriber and its insurer are in the best position to manage the risk of loss. Security providers are not insurers and do not (or should not) value their services based on the value of the property being protected. Thus, the mansion that is worth $5 million generally should be charged the same monthly alarm monitoring fee as a $100,000 house in the neighboring town. Among the issues courts consider when evaluating such limiting provisions is whether they are substantively unconscionable – meaning unduly one-sided, oppressive and/or the result of unequal bargaining power. It is this bargaining power issue that is of interest here. Bargaining Power Some of my clients are multi-billion dollar companies. Often, they contract with residential customers or small businesses. The perception is that the bargaining power is vastly unequal; however, this is not correct. Obviously, the market for security services is competitive – prospective customers genuinely have meaningful choices in the marketplace. They need not contract with a particular company over another, or they could decide not to purchase the service at all. Under this premise, there is parity in the bargaining power of the company (which wants to sell the service), and the customer (who has a meaningful choice to buy the service elsewhere or not at all). Nevertheless, I guide my clients not to rest on this alone. To make my clients’ limitation of liability provision as robust and enforceable as possible, I also recommend that the governing contract include a provision clearly indicating that the customer has the right to request an increase in the limitation of liability for an additional monthly monitoring fee. This validates the notion that the contract (and, particularly, the limitation of liability provision) is not “take it or leave it” and that the customer has options to increase the limitation of liability. Case in Point Now, back to “Jim” (wink, wink) and his defense of that $5 million fire case. He dedicated substantial time and effort to preparing his witnesses for depositions and shared with them his To make limitation of liability as robust and enforceable as possible, I recommend a provision indicating that the customer has the right to request an increase in the limitation of liability for an additional monthly monitoring fee. This validates the notion that the contract is not "take it or leave it" and that the customer has options to increase the limitation of liability.

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