The Legal Side: Alarm licensing questions

The Question:

We do business in a state where burglar alarm companies must have a state license, and a separate, different, state license is required for fire alarm work. Recently we have discovered that some of our competitors are unlicensed.

In one case it seems that several years ago the alarm company underwent some type of business restructuring resulting in the parent "holding" corporation retaining all of the required licenses, and the "operating" corporation being unlicensed. In another case, it appears the alarm company is advertising and using the licenses issued to another company.

Thus it appears that these unlicensed alarm companies are unfairly competing against all of the other companies that are properly licensed, and consumers are doing business with unlicensed entities pursuant to, I presume, unenforceable and uninsurable subscriber agreements. What are the possible ramifications of this? What remedies are available to consumers or competitors? Do contracts address the licensing aspects of this?

Signed,
Licensed guy

KEN'S ANSWER:

First let's deal with the what you as a licensed alarm company can and should do about unlicensed competitors: Report them.

The governmental agency that is responsible for licensing will be able to handle your complaint of unlicensed persons or companies, or they will refer you to the proper authority for enforcing the licensing statute. The penalty for conducting business without a license varies from monetary fines to stiff criminal sanctions. The remedy, however, is almost always action by the licensing authority or the state, and not an individual or private right or cause of action. In other words, you most likely have no right to enforce the licensing requirements.

In New York, where I am located, your complaint could be made to the Secretary of State, who licenses the alarm companies, the local district attorney, who enforces the criminal laws, and the State Attorney General, who also enforces state laws and pursues deceptive trade practices. Other states have the equivalent of these official officers.

The general rule is that if a company is not licensed then its contracts are not enforceable and terminable at will by the consumer. Therefore, an unlicensed contractor will not be able to sue and collect on the contract. This is the case if the licensing statute is considered a consumer protection statute, and not merely revenue raising. I would think that all alarm licensing statutes would be considered consumer protection statutes, and unlicensed contractors could not enforce the contract. While a consumer may not be able to recover money paid for services already rendered, the contractor would not be able to enforce future payments and the subscriber could cancel at will. The contractor would also be liable for the cost of removing the equipment and replacement if the subscriber decided to cancel the relationship once learning that the contractor was not licensed.

If there was a loss suffered by the subscriber, the unlicensed alarm company may still be able to rely on the contract terms for protection. The fact that the contractor is unlicensed will be one of the facts raised in the case, but negligence will still have to be proved, and unless the contract itself violates some statute or public policy, then the court is likely to enforce it until the subscriber actually terminates it upon learning that the contractor is unlicensed. Keep in mind that I am merely expressing my personal opinion about this issue and different facts of each case could quickly change this opinion.

You also raise the issue of insurance coverage. I do not know whether an insurance company would be able to disclaim based on no license, or if it would. That would depend on how the policy is written and whether coverage is conditioned on a license and maintaining that license. Absent that kind of provision, there would probably be insurance coverage. More than likely the policy would be canceled if the insurance carrier discovered there is no valid license.

The bottom line is that it is not acceptable to operate without a required license under any circumstances.

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 ken@kirschenbaumesq.com. His website, www.kirschenbaumesq.com, 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.

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