9.16.22 -SSI – Ken Kirschenbaum
Indemnity exposes you to all your company assets, unless you’re smart enough to have created a separate entity to conduct the alarm business and you observe the necessary corporate procedures
Most likely you have agreed to indemnify your central station. That indemnity covers not only mistakes that you may have made in installation or programming, but mistakes that the central station may make when responding to alarm signals.
You are indemnifying the central station for its own negligence if that negligence involves your customer.
If a central station operator makes a mistake on a signal, fails to dispatch or delays the dispatch or talks too much or does something else that the customer (or its insurance carrier) thinks contributed to the loss, you and the central station are likely to be sued.
The central station is going to demand indemnity from you, which means defending the central station in the lawsuit and paying whatever damages are assessed against the central station.
Most lawyers, judges and people would not readily accept this indemnity undertaking; it seems contrary to accepted allocation of risk in construction settings.
In typical construction scenarios, the subcontractor indemnifies the general contractor (GC), architect and owner; the GC indemnifies the owner and architect. In a homeowner situation, the GC indemnifies the owner and the subcontractor indemnifies the GC. A contractor working directly for a homeowner indemnifies the owner. All this gets turned around in the alarm industry contract world.
Your subscriber is indemnifying the dealer; the dealer indemnifies the central station (and some dealer programs and manufacturers).
Indemnity exposes you to all your company assets, unless you’re smart enough to have created a separate entity to conduct the alarm business (i.e. corporation or LLC) and you observe the necessary corporate procedures to avoid piercing the corporate veil. If you still conduct business in your own name or an assumed name (unincorporated) then you are exposing all of your assets.
Risking your entire business is really more than enough risk for most alarm owners. It’s a risk you should not be taking when it comes to indemnifying the central station. Recognizing the risk involved by indemnifying the central station (or manufacturer) you should name the central station as an additional insured on your E&O insurance.
But this will cover you only to the extent of your insurance coverage. Unless you have limited your indemnity to the insurance coverage you will be exposing your company assets (and if not incorporated all your assets) if the damages exceed your insurance coverage.
What to do? You must limit your indemnity exposure to your insurance coverage. The central station Dealer Agreement (alarmcontracts.com) requires indemnity and it doesn’t limit that indemnity. You should have the Rider to Central Station Dealer Agreement. The rider will address about 10 items, the indemnity issue is one of them, and probably the most important.
It’s so important that if the central station won’t agree to limit your indemnity to the insurance coverage I believe you should consider a different central station. Moan all you want about having to move the accounts; you’ll be howling (not moaning) if you end up exposed for a central station mistake.
Why would a central station agree to limit your indemnity? A couple of reasons are that competitive central stations may be agreeable to limiting your indemnity, and the central station probably carriers a lot more E&O coverage than you do or most of its dealers carry.
Most of the risk the central station assumes is going to be for its negligence, not the dealers. While the central station may get sued in any kind of loss scenario it really faces exposure only if it received the signals and failed to adequately respond to the signal. Under that scenario the central station, arguably, should bear its own responsibility for its negligence.
Also keep in mind that the central station will likely have much more coverage than the average dealer and we certainly don’t want to have a situation where the central station’s E&O carrier decides to pursue the dealer for indemnity for reimbursement of its insurance payments.
Don’t accept this risk; insist on the Rider to Central Station Dealer Agreement, at least on this issue.