Lessons in litigation: reducing exposure

Having served as lead counsel in many alleged alarm failure cases, I've seen the effect an extended litigation can have on a business. This is true even in the security and alarm industry where the use of certain liability-deflecting contractual provisions is commonplace and wise. While you can't eliminate litigation altogether, you can reduce your company's exposure by following some fundamental steps. DON'T RELY ON LIMITATION OF DAMAGES Too often, alarm companies believe they can escape liability or, at a minimum, any significant exposure because their standard form contract contains a limitation of damages provision. While the use of these provisions is encouraged and does deter the marginal plaintiff, the law varies from state to state and case to case. Exculpatory contract provisions are less likely to be enforced against residential customers and small businesses and have limited applicability to third parties (with whom you did not contract). Translation: Don't forget to preserve your defense on the merits. DOCUMENT EVERYTHING Did your customer decline to have a functional test of its alarm system following installation? Did your technician just travel to your customer's location for a momentary check of the alarm panel? Did your customer request a programming change to a particular zone of a monitored alarm system? These issues and all other matters bearing upon the account history of your customer must be thoroughly documented--even if you don't intend to charge the customer. What might seem inconsequential at the time can govern who wins and who loses a case. You must stress these points with your employees in the field--they are your first line of defense. PRESERVE YOUR DOCUMENTS Like a criminal investigation, an alleged alarm failure litigation requires a close analysis of the evidence. Sometimes, the evidence is years old. Because statutes of limitation vary from state to state, some claimants may be able to sue you years after an alleged incident. Be mindful of these issues as you develop or refine your document retention policy. STUDY ALARM HISTORY If facing threatened or actual alarm failure litigation, immediately look at the full alarm history or, at least, the critical history on the account. Study it again as the case evolves and as you or your lawyer piece together what actually happened. Even if your system did not operate on the day in question, the history can contain conclusive proof that you did nothing wrong. WHO SIGNS YOUR CONTRACTS Who is signing on behalf of your company? Many companies have an internal policy specifying who has the authority to bind the company to a contract. If you think you have a valid and enforceable agreement, but your signatory is someone not expressly authorized by your own policy, the customer could escape enforcement of the agreement or certain of its provisions. Who is signing on behalf of the customer? In the residential context, your contract should be signed by the home-owner. That's easy. It's not as clear in the commercial context. In summary, the law will not support enforcement against the customer unless the contract is signed by someone with actual or apparent authority. The chief executive officer may have actual and apparent authority. The CEO's secretary probably has neither. While you are not expected to know your customer's internal corporate structure, don't accept the signature of anyone you reasonably suspect lacks the authority to sign. These lessons are just a few of the dozens to be learned from litigation. You can learn them the hard way or the easy way. What's my advice? Learn the lessons now, be proactive every day and hire a good lawyer if and when the need arises. *** Timothy J. Pastore is a partner in New York law firm of Duval & Stachenfeld LLP. He can be reached at tpastore@dsllp.com.