The court analyzing the contract noted that as a liquidated damage clause the alarm contract provision would not be enforced because the amount of the liquidated damage, in this case $1,000.00, was indeed disproportionate to the amount of actual damages. The court further determines that the amount of the potential actual damages could have been estimated and that the nominal liquidated amount could not possibly have been the potential actual damage contemplated by the parties.
However, as a limitation of liability provision, the liquidated amount ($1,000) was not disproportionate to the amount that the subscriber was paying for the alarm service, a much different criteria than comparing it to the actual damages ultimately suffered by the subscriber. Thus, the court in this case recognized that the alarm company could not afford to undertake a potential liability greater than the contractual limited amount in view of the price it was charging for its system and alarm service. The contract provision was therefore enforced as a limitation of liability provision.
Of course, the entire analysis could have been avoided if the alarm company had a properly worded limitation of liability provision.
Many alarm companies think they are protecting themselves by combining the language from both types of clauses into a single clause. Frankly, itâ€™s not a good idea.
If you operate in a single state then you should find out which provision your state prefers and enforces. Sometimes it is a matter of which provision has been reviewed, addressed, and enforced in your state. Ohio, like New York, enforces the limitation of liability provision.
You can check for the leading cases in your state on my web site at http://www.kirschenbaumesq.com/casesbystate.htm.
Make sure your contract has the proper provisions to ensure your best protection. You can obtain properly worded up to date contracts at www.alarmcontracts.com.
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 email@example.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.