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ISC West group and private meetings / Limitation of Liability clause update
February 28, 2023
ISC West group and private meetings
          It’s time to prepare for ISC West at end of March.  I am going to schedule group discussion meetings and private meetings.  To reserve a spot at a group or private meeting please contact Stacy Spector,Esq. 1 516 747 6700 x 304 or, K&K’s Concierge Program coordinator [you don’t have to be a Concierge Client to reserve a spot].  Topics, private meetings and schedule are TBD.
          I will be available for private meetings and consultation.  I will also coordinate and attend, if you like, private meetings with some of those who will be participating in group discussion meetings. 
          Anyone who wants to lead a group discussion or have ideas for a discussion should contact me to be included in the schedule.
          The following are some of the group meetings I am planning [and will coordinate private meetings with these industry experts]
  *  What buyers look for and how they evaluate your business.  Meet one of the most active buyers of central stations, alarm companies and alarm accounts paying the highest multiples.
  *  How lenders view your company and decide on financing your business or your acquisition. Meet one of the most active lenders in the alarm industry
*  How the value of your alarm RMR is calculated and how non-RMR is calculated.  Meet one of the most knowledgeable tax and business consultants in the alarm industry
  *  What you should expect from your central station and what you can expect at the top central station in the business.
  *  Employee Retention Credit:  meet with tax expert to discuss if you’re eligible
  *  Alarm contracts:  which ones you need and which ones you should have.  Group or private meeting with Ken Kirschenbaum
  *  Buy-Sell deals:  Thinking about or ready to sell?  Meet with Ken Kirschenbaum to discuss best ways to increase value and get ready to sell or buy.
  *  AIN buying group.  Meet with Stan Matysiak in group or privately, time well spent
  *  Brokers:  discuss options and what to expect
  *  Thinking of selling:  Discuss multiples and what your company is worth
  *  E&O coverage: What's available; what do you need; where to get it

Limitation of Liability clause update 
          It is generally accepted that the exculpatory clause [which eliminates damages for breach of contract and negligence in a contractual setting] and a limitation of liability clause [which limits damages to a nominal sum] are not enforceable when gross negligence or willful misconduct is alleged and subsequently proved. 
          The limitation of liability clause was designed as a back-up to the exculpatory clause.  When all damage waiver would not be enforced the thought was to limit the damages, typically to a nominal amount; $250 is industry standard.  These clauses are the subject to most challenges to the “printed” alarm contract.  To address the anticipated challenge in advance both provisions were modified in the Kirschenbaum Contracts™ by excluding gross negligence and willful misconduct from the provisions; in other words, accepting liability for gross negligence and willful conduct.
          These [gross negligence and willful misconduct] are not abstract legal concepts, though they are defined differently from state to state.  In New York, a state where there are a fair share of alarm defense cases, it’s defined as follows:
          “[A]n exculpatory agreement, no matter how flat and unqualified its terms, will not exonerate a party from liability under all circumstances. Under announced public policy, it will not apply to exemption of willful or grossly negligent acts. More pointedly, an exculpatory clause is unenforceable when, in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing. This can be explicit, as when it is fraudulent, malicious or prompted by the sinister intention of one acting in bad faith. Or, when, as in gross negligence, it betokens a reckless indifference to the rights of others, it may be implicit. In either event, the policy which condemns such conduct is so firm that even when, in the context of circumstances surrounding the framing of a particular exculpatory clause, it is determined . . . that the conduct sought to be exculpated was within the contemplation of the parties, it will be unenforceable.”
          The criteria for gross negligence or willful misconduct is quite high, though alleging it is of course a lot easier than proving it.  Sufficient facts will suffice to defeat a motion for summary judgement, and then it’s a risky trial you have to look forward to if the case isn’t settled [which it usually is]. 
          In 2020 an important case in New York was decided declaring that though a nominal limitation of liability would not be enforced if gross negligence was found a “reasonable limitation” was enforceable.  Significantly the case did not address willful misconduct and enforcement of a limitation for willful misconduct remains uncertain.
          “Matter of Part 60 Put-Back Litig., 36 N.Y.3d 342 (2020), the New York Court of Appeals considered whether a sole remedy provision (limiting, but not eliminating, the remedies available to plaintiff in the event of a breach) “may be rendered unenforceable by plaintiff's allegations that a breach of contract occurred as a result of gross negligence.” Id. at 352 (quotation marks omitted). The Court of Appeals held:
We have previously considered the application of the gross negligence public policy rule only in cases where the contract provision at issue was an exculpatory clause, purporting to wholly immunize a party from liability, or a nominal damages clause limiting damages to, at most, $250. We have not yet determined whether grossly negligent conduct may render unenforceable contractual provisions that do not wholly insulate a party from liability for its breach, but instead impose reasonable limitations on either liability or the remedies available to the non-breaching party. We conclude that, in a breach of contract case, grossly negligent conduct will render unenforceable only exculpatory or nominal damages clauses, and the public policy rule does not extend to limitations on the remedies available to the non-breaching party.”
          In Rectangle Medical Dental Payments, Llc, Et Al., Plaintiffs, V. Retriever Medical/Dental Payments Llc the case involved allegations that alleged that the defendant intended to breach the contract and therefore defendant may have committed willful misconduct, not gross negligence.
          “Plaintiffs, however, do not allege gross negligence; rather, plaintiffs contend that Section 4.6 is unenforceable as a matter of public policy because defendant negotiated the ISO Agreement in bad faith. Matter of Part 60 Put-Back Litig. “considered only the public policy exception for gross negligence; it did not discuss the public  policy exception for willful misconduct.” 1S Chrystie Mgmt. LLC v. ADP, LLC, 205 A.D.3d 418, 420, 168 N.Y.S.3d 449, 451 (2022). Thus, defendant's reliance on Matter of Part 60 PutBack Litig. is misplaced.”
          Subscribers often ask that the limitation of liability clause be changed from $250 to the amount of the insurance policy; sometimes the full amount of the contract payments required from the subscriber.   Offering up the insurance limits is likely a problem because 1) it’s not your money and 2) your E&O carry expects you to have a limitation of liability clause with $250 limit.  Routinely increasing that limit to insurance limits is likely to get you a premium increase or non-renewal if not cancellation once the carrier catches wind that you’re altering that provision in the contract.
          What change is needed to go beyond “nominal damages”?  Certainly the policy limits would meet that criteria.  If you monitor a fire alarm is the building, its contents or the people inside, the appropriate measure of potential damage?  If so, the policy limits may not be even close to covering the loss.  Will what the subscriber paid to date [which will certainly be less than the policy limits] be sufficient?  Will other provisions in the Kirschenbaum Contracts™ provide other avenues of protection, such as the Insurance Procurement clause? 
          I’ll be mulling this over for a while, so feel free to contribute to the analysis and suggest changes.  Those that don’t use Kirschenbaum Contract™ better get on the phone with whoever you stole or bought the contracts from.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301