This sounds like a lawsuit waiting to happen. I think it's a great idea, but at 2.99 I don't think it's going to be profitable enough to take on the lawsuit risk.
...There needs to some kind of legislation/regulation on lawsuits. Perhaps, the plaintiff must pay the legal fees for the defendant upfront, up to a maximum of 5% of the desired damages being sought.
Example: If you want to sue for a $1 million, you have to pay up to $50K in legal fees for the defendant. If you win the case, the defendant's legal fees are tacked onto the damages that he must pay. If you lose the case, you lose all your money.
I think this would discourage many lawsuits from happening. Only those with true merit would be pursued.
I don't think suits against game manufacturers like this necessitate any kind of legislation. Why? Simple. Like my lawyer told me when I was building my first app- "Sure you COULD get sued, but you don't have two nickels to rub together. No attorney would take a case against you." In business getting sued is a good thing. It means you're successful.
EDIT: I think it would be a good idea to remove the language about fire alarms etc. and only mention alarm clocks and the like. It would be much harder to sue if the app didn't claim to respond to fire alarms.
Any reliance on an app such as this is going to be at the risk of the user. This is a tool for assistance and is not in anyway a replacement for standard emergency protocol.