7.12.24 – SSI – Ken Kirschenbaum
Apart from being the best contracts in the industry, a great reason to use K&K contracts and join the Concierge Program is that K&K knows the contract terms cold. That means we are in the best position to answer challenges and negotiate changes to terms.
Despite having reviewed thousands, I have to admit that I was actually stumped recently regarding a challenge to the exculpatory clause. (In fact, I got two challenges in the same week!)
The exculpatory clause exonerates you — that is, relieves you of liability — for your negligent performance, negligent failure to perform, etc. The limitation of liability clause limits your exposure to damages to a nominal amount.
Now, consider a sizable contract for an installation. Say it’s $50,000 (but it could really be any amount). A deposit on the contract is required. (Again, the amount is almost irrelevant.) The subscriber’s lawyer challenges the provisions with the most common argument: Why shouldn’t your client be liable if it’s negligent?
The response — namely, that the alarm company isn’t an insurance company, etc. — is almost always accepted. However, the challenge goes like this: What if the alarm company simply takes the deposit and doesn’t perform at all, or otherwise breaches in connection with the installation? That is, what if the company fails to complete it or fails to render it operable and working?
Somewhat taken aback by the challenge, I opined that the provisions would not apply in such situations, and I agreed to make that clear by adding a few exceptions to the provisions.
Exploring the Effect of the Exculpatory Clause
A recent case reminded me of the issue, although in the context of the indemnity provision. The K&K indemnity provision applies to both subscriber and third-party claims. That terminology has actually been in K&K contracts for decades.
We have often claimed the indemnity provision acts as a release, and we have also actually commenced actions [in New York called Third Party Action] against a subscriber to indemnify against a lawsuit filed by the subscriber’s insurance carrier trying to recoup money paid the subscriber through its subrogation rights.
And, yes, the K&K contracts waive subrogation rights — but that may be missing or ignored by the carrier when it brought the suit.
The recent lawsuit that inspired this article was decided in Illinois as Indeck Power Equip. Co. v. Ashley Energy, LLC. The court was dealing with a fraud claim but addressed the issue of the breach of contract claim. The court noted the following:
On a related note, Indeck also generally argues that the disclaimer language contained within the agreements defeats any claims based on supposed misrepresentations about the condition of equipment. But Ashley correctly notes that contract language cannot exculpate a party from failing to provide equipment that satisfies its core function. See Resp. at 8 (citing Horne, 987 F.3d at 723; Vigortone AG Products, Inc. PM AG Products, Inc., 316 F.3d 641 (7th Cir. 2002)). Indeck’s attempt to distinguish between “exculpatory language” and “as-is” and “disclaimer” language misses the mark; the rule at issue is not limited to exculpatory language. See Horne, 987 F.3d at 718 (“under Illinois law, a party in material breach may not enforce a provision of a contract that is favorable to him, such as an exculpatory clause.”) (citing cases). Still, courts generally seem to apply that rule when addressing contract claims, not fraud. While Ashley has raised affirmative defenses to Indeck’s breach of contract action, it has never brought a counterclaim for breach of contract. In other words, a “core function” argument may have bearing on Ashley’s affirmative defenses, but as explained above, the disclaimer language defeats any claim of reasonable reliance based on pre-contract statements (or omissions) regarding the condition of the leased equipment.”
It Just Won’t Work
I can’t really imagine that any alarm company using the K&K contract would think that you could take money and simply fail to perform and then claim no liability under the contract terms. It won’t work — not that kind of claim.
The subscriber suffers a loss because it’s claimed you didn’t install something, or that you installed it and it didn’t work. The contract terms will hold up. And isn’t that what the protective provisions are really for?
About the Author
KEN KIRSCHENBAUM, SSI Contributor
Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.