The Legal Side: Getting into the PERS business


We are getting into the PERS business, and right now are using our standard security sales and monitoring agreements. We'll be hiring out monitoring to a 3rd party central station with medical alert skills and we think that by paying for trained 3rd party monitoring, we'll reduce our liability. Are there unique things we should examine in our contracts, and should we form an LLC for our PERS business to limit our liability?
--Signed, a future PERS dealer


Will using a wholesale central station to monitor your accounts "reduce your liability"? The answer is "perhaps", and presumes you would use well-written contracts.

You will certainly be spreading the exposure if you use a third party monitoring company. Check if your subscriber has signed a contract (like my standard monitoring contract) that provides that you can subcontract out services, such as monitoring, and that you are not responsible for loss caused by your subcontractors. A good contract also extends the protective provisions, such as exculpatory clause, limitation of liability, etc., to cover your subcontractors. However, the contract you sign with the central station probably requires you to indemnify the central station if your subscriber sues, so you're back where you started in terms of exposure. If there is a loss and the cause of the alarm service failure is not readily known, then you, the central and anyone else that can be identified is likely to be sued if the loss is significant enough.

Keep in mind that even if you have great contracts, they are no substitute for errors and omissions insurance, which you get from a broker familiar with the alarm industry. If you need a broker referral just ask (my contact info is at the bottom of this column) and I'll be happy to give you the names of the major brokers in this industry.

Now, as to the question of forming a second company, such as an LLC: First of all, you probably never need an LLC; I prefer a sub chapter S corporation. But the real question is - do you need a separate entity for your PERS operation? Not likely. In fact, if you do exclusively or primarily PERS you may find that it's harder to get insurance E&O coverage. I guess the carriers think there is more exposure in PERS. It's not usually an issue if PERS is just another part of your services, so unless you provide PERS exclusively I would not separate that part of the business.

Another reason for not creating a separate entity to conduct part of your business is that you are probably not going to really operate that entity separately. Unless you plan on having separate business location, phone number, bank account, employees, etc, you will probably be exposing all your businesses are alter egos of the others. If there is a big enough loss the claimant will be looking for anyone and everyone with a deep pocket, and pointing the claimant to a shell entity with little or no asset value is not going to work if you have another entity with real asset value. Again, keep in mind that you cannot operate without E&O insurance. one claim that you have to defend could cost tens of thousands of dollars, and that's just the legal fees. If you don't have insurance then get it today. And before you apply for that you'll need proper contracts -- so may as well get them today.

About the author: Ken Kirschenbaum, Esq., is a New York-licensed lawyer practicing with Kirschenbaum & Kirschenbaum PC, a Long Island legal firm with a rich history of assisting clients in security and alarm related matters. Ken can be contacted via email at His website,, features a great supply of legal information and court rulings relevant to the security industry. You can also sign up for Ken's discussion list from his homepage.