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Untrained fire alarm repairs / lawsuit issues / buying alarm accounts
December 15, 2021
Untrained fire alarm repairs / lawsuit issues / buying alarm accounts  
            In regards to people wanting to have fire alarm equipment repaired by someone other than the factory or an authorized repair station, I am curious what would occur if there is an ‘oops’ and a loss.
            Since there are fire code issues, including UL, what could occur during the trial?
            Just a thought as I turned down a possible acquisition as the company repaired their fire panel boards themselves, at the board level, and then, of course, did not have a ‘KEN’ contract with its subscribers….. 
Joseph (Joe) Pfefer, President & Founder
Jade Alarm Co.
            Couple of issues that at first blush don't appear to be related, but just may be.
          Repairs to alarm systems, fire or other systems.  Most alarm companies try to arrange for continued services after installation; monitoring, repair services and, especially for fire alarms, inspections.  The smart money is on plans with RMR so that the revenue build-up over time happens as well as the build-up of equity.  If your subscriber has contracted for repair service and pays a recurring charge for that service it's likely that you will be called for service.  In fact, the Standard Form Agreements are clear that if there is a service plan no one else is permitted to work on the alarm system, fire, intrusion or other.  It makes sense.  If you have committed to repair the system, labor and material [for ordinary wear and tear] you shouldn't have to clean up someone else's mess when there is an attempted repair. 
            The same analysis applies to a warranty following a sale, which can be of the entire system or a component in connection with an after-sale repair that required new equipment.  The Standard Form Agreement voids any warranty if someone else tampers with the system.
            But not all alarm company owners get or want RMR service and inspection plans.  Those services are provided on a per call basis.  The Standard Form Agreement does cover this option and makes it clear that the subscriber is not obligated to call the alarm company and the alarm company is not obligated to respond and make the repair or inspection.  This relationship is generally fine, except when there is monitoring.
            Monitoring changes the situation regarding repair service.  Almost all alarm companies provide monitoring using a RMR monitoring plan.  The monitoring is provided via a written contract that calls for recurring monthly revenue to be paid over the term of the agreement, generally 3, 5 or 10 years and after the initial term the Standard Form Agreement provides for month to month automatic renewal.  Sure, some alarm companies permit a month to month term which permits a subscriber to cancel on 30 day notice, and some don't have month to month automatic renewal, but that's their problem and not a topic for this article.
            So let's get to the first question, which is a fire alarm owner who has someone not properly credentialed or trained to repair a fire alarm, followed by fire alarm failure and damages claimed in a subsequent lawsuit.  The answer may surprise you because it's not quite as simple as it sounds. 
            Assume a fire alarm repair that isn't performed correctly and a fire that is not detected or responded to properly; serious loss to property and injury to people.  A plaintiff in a lawsuit, probably multiple lawsuits by multiple plaintiffs, seek damages for death, personal injury and property damage.  The claim will be a cause of action for negligence, which will require a showing of duty, breach of that duty, foreseeability and proximate cause and damages.  To establish damages, to explain it simply, the plaintiff will have to establish that a mistake was made; a departure from established standards, such as NFPA, manufacturer specifications and custom and practice in the industry.  It really won't matter if the tech was trained or credentialed at that point because all that will matter is if a mistake was made.  The fact that the tech wasn't credentialed or trained may create an inference that there was likely a mistake, but the mistake would still have to be established by an expert.  A simply analogy may help.  You get into a car accident and the other driver isn't licensed to drive.  Does that mean you win automatically?  No, you would still have to show that the accident was not your fault and was the fault of the other driver, licensed or not.  The argument you'd make would surely start with, "this guy isn't licensed" by which you'd intend to create the inference that he doesn't know how to drive properly, but you will still have to prove the negligence of the driver.  Same for the repair of the alarm system.
            Even ignoring code and custom and practice in a repair won't conclusively establish negligence.  It will create an inference that may be hard to overcome if the cause of the defect isn't clear [as is often when a fire destroys the fire components]. 
            The next issue raised is whether you should be buying contracts from another alarm company when it doesn't have trained techs and doesn't use up to date proper alarm contracts, Kirschenbaum Contracts ™.  The scenario could be described as an accident waiting to happen.  The answer to this question isn't cut and dry either, because it depends on your tolerance for risk.
            You buy contracts from another alarm company, you own them upon closing.  A loss occurs after the closing, it's your loss, not the seller's.  Turns out the system defect was caused by the seller, maybe during installation or a pre-closing service call.  Yes it's possible to have provisions in the Acquisition Agreement that imposes the liability on the Seller, probably by way of indemnity, but it's not a provision I'd recommend my selling client agree to and it's not something I would ask for when representing the buying client.  You will see something like this only when the attorney is not alarm industry knowledgeable or one who is unreasonable [and also not alarm industry knowledgeable] and hopes the other attorney is an idiot, which unfortunately isn't that hard to find.
            So, when you buy the alarm contracts and alarm accounts you will be responsible for the systems after the closing.  It's your insurance carrier that will be defending the loss that occurs after the closing.  It's the contract your purchased that both you and your insurance company will be relying on the defend the case.  If it's not a proper contract you face risks.  What risks?  Well, a claim that exceeds your insurance coverage for one.  That should be enough to keep you up at night.  Another risk, just to add icing on the cake, a disclaimer by your carrier because you don't have a proper contract, or more likely, a notice of cancellation of the policy or non-renewal of the policy [though the carrier will finish out the case].  And, while you're down, may as well add another risk factor to add to your misery, a notice from your central station that if you don't produce a proper contract for every one of your monitored accounts you must take your monitoring elsewhere and you've got 10 days to take a hike.  Maybe you can find an insurance carrier and a central station with very high tolerance levels, most likely represented by one of the attorneys I described above.
            But there is a positive side to buying the alarm accounts and contracts [if there are contracts] and that would be the price.  Everything's got a price.  So if you're tolerance level for risk is high enough and the price for the contracts is low enough, you may have a deal.  What are these poorly contracted accounts worth?  Well, nothing if you have no tolerance for risk.  But if you do, then anywhere from 10 to 25 times depending on a bunch of other factors that make up the calculation of the multiple.  Why do low on the multiple scale?  Because my advice would be to buy the accounts and promptly demand every acquired account sign a new Kirschenbaum Contract ™ and terminate every customer who won't sign a new contract.  What?  Yes, you could lose half or more of your monitoring accounts.  [you could also lose your service and inspection RMR customers].  But if you lose half then your calculation for the purchase changes from 20 to 50 multiple.  Look at it that way.
            Of course all you potential sellers [and that applies to every one of you eventually] better take notice of what's above.  I am talking about the equity in your company, your likely selling price.  If you're OK with 10 to 25 so that the buyer can then go  out and make those accounts worth double, then so be it.  I can't stop you from banging your head against the wall and I sure can't make you drink the water.  However, there is no reason for you to be in this predicament because you still have time to update your contracts so that when it's time to sell you will be prepared to get top dollar, top multiple for those contracts.  Get proper contracts at and don't be the company mentioned above who lost a potential buyer because proper contracts aren't used.

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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