By Susanna Chu for Radius Security
If a security provider is negligent, is it liable for all a client’s related losses or damages? The short answer: It depends. But generally, no. Why? Largely because of the limitation of liability clause, standard in most service contracts.
What is a Limitation of Liability Clause?
Basically, a Limitation of Liability clause says that if the security alarm equipment or services fail, the alarm company is not liable, or only partly liable, for a subscriber’s losses that the system was supposed to prevent. Even if the security company was negligent or broke a term of the contract, it does not have to reimburse you for losses due to a security breach.
What a Limitation of Liability Clause is Not
Hold it, you say, that’s not fair! Does that mean the security company can do whatever it wants without being sued? No, generally speaking, limitation of liability clauses don’t cover the direct consequences of the company’s on-site negligence. That is, if an employee drops a heavy security camera on a bystander’s head, drives a service truck through your office door, or steals your valuables, the limitation of liability clause does not apply.
Why Limit Liability?
Like any other term of a contract, a limitation of liability clause sets out who is responsible for what in any given situation. Security providers don’t want to be responsible for all possible losses because
1) Exorbitant costs. To cover all potential losses, a security company would have to charge sky-high prices for their services.
2) Unpredictable risks. At the time a security system is installed, it is impossible to know how much loss or damage a client may suffer in the future.
3) Extensive lawsuits. Dividing the percentage responsibility for losses between the security company and others is difficult and would lead to extensive litigation.
“Why Won’t You Pay for Your Own Negligence?”
Nobody’s perfect. Alarm systems and alarm services aren’t foolproof. Equipment breaks down. People make mistakes. While a security provider may replace broken security cameras and video monitoring equipment for free, no alarm company would ever promise to reimburse a client for all losses due to a failure to detect wrongdoing.
The bottom line is, the security company does not cause the loss. It can only detect the loss. Thieves, vandals, trespassers cause loss and damage, not security companies.
It’s up to a security company and its subscribers to divide up the risk of loss. In return for the use of security equipment and monitoring services at a reasonable price, clients agree to buy separate insurance for their valuables. Or, for an additional fee, a security company may agree to assume greater liability. It’s up to the parties to decide how to allocate the risk.
The law on limitation of liability clauses can get pretty complicated. Some judges consider it a way of specifying damages in advance (liquidated damages), or protecting the security company against any legal action (exculpatory). The circumstances, and the applicable law, can vary.
Case A – Missing Client
While a client was out of the country, the alarm company received some low battery and “trouble” alerts. The company tried to notify the client, but couldn’t. The client later sued the company because his home was broken into. The judge decided that the limitation of liability clause was valid (although an exulpatory one was not), even though the client did not know about it. (Gold)
Case B – Grocery Bill
After arming a burglar alarm, a grocery store manager was forced to unlock the store for a robber. Tied up while the thief gets away with more than $35,000, the manager is shocked that the security company did not send the police in time. The court found the alarm company’s failure to notify police helped cause the store’s loss, but limited liability to $50 in liquidated damages, as set out in the contract. (Better Food Markets vs District Telephone Co., as summarized in Cohen, pp. 814-815)
When operating your alarm system company and providing installation services, you want to make sure you do your best to carefully and successfully install the system, and be aware of any laws and regulations you should be adhering to.
It’s important to make sure you are protecting your business and employees from potential threats. Central Insurance Agency is prepared to provide you with a custom insurance solution to fit your needs. Read below for clarification and definitions of important codes and terms to know in order to operate your business safely.