SIW "Legal Side" columnist 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.

Perhaps the most important provision in a properly drafted alarm contract, from a defense standpoint, is the limitation of liability provision, or the liquidated damage clause. Though some courts treat the two provisions similarly, and will enforce either provision under the same circumstances, the limitation of liability provision and the liquidated damage clause are in fact two distinct different types of provisions.

Often the courts in a state will be willing to enforce a limitation of liability provision, but not a liquidated damage clause. Other states will favor the liquidated damage provision in an alarm contract. It is essential that you know which type of provision is preferred and enforced in your state and make certain that your alarm contracts contain the proper wording.

How do you know which provision your contract has? A "liquidated damage provision" typically contains at least some of the following wording:

The parties agree that in the event subscriber suffers any damages as a result of the alarm company’s breach of contract or negligence that it would be impractical and extremely difficult to anticipate or fix subscriber’s actual damages. Therefore subscriber agrees to accept $250.00 in full and final damages in the event of the alarm company’s breach or negligence.

Courts will enforce a liquidated damage provision where the agreement is clear in its terms, and the court further finds that the specified liquidated amount is not a penalty. To determine whether it is a penalty as opposed to estimated damages, the court would normally have to find that there was an uncertainty as to the amount of potential damages or difficulty of proof and that the contract as a whole is not manifestly unconscionable, unreasonable, and the liquidated damages is not disproportionate in amount so as to justify the conclusion that it does not express the true intentions of the parties.

A limitation of liability provision is subject to scrutiny, but there is a different analysis. The "limitation of liability provision" typically reads as follows:

Should there arise any liability on the part of the alarm company as a result of its breach of contract or negligence, the parties agree that the alarm company’s liability shall be limited to $250.00.