12.20.19 – SSI – Ken Kirschenbaum
The alarm contract contains various provisions that acting together shift the risk for liability to the customer, not the alarm company.
A security company owner who uses Kirschenbaum & Kirschenbaum’s Standard Alarm Contracts writes … We have a client that is ready to sign a $6,000 deal but they are questioning this language in our contract: “Client shall maintain a policy of Comprehensive General Liability and Property Insurance for liability, casualty, fire, theft, and property damage under which Client is named as insured and ISG is named as additional insured and which shall cover any loss or damage ISG’s services are intended to detect to one hundred percent of the insurable value or potential risk.” The client is asking why we would fall under his insurance. Can you dumb it down?
It’s not unusual for the customer to challenge the insurance procurement clause. And if the customer asks an insurance broker, rest assured that the broker will tell the client to object, strenuously.
This is quite different than a mere “certificate holder,” who is given notice of cancellation of the policy but otherwise has no interest, or direct protection, under the policy. The additional insured is another matter because they do have direct rights and protection under the policy.
While those rights and coverage may be somewhat different than the named insured, for all intent and purposes, it provides coverage to the additional insured for the acts of the named insured, and that’s what is intended.
Additional insured can be “primary” so that it kicks in even before the additional insured’s own policy. Here’s why it opens a can of worms to make too much of this particular challenge. The alarm contract also requires the customer to indemnify the alarm company. The additional insured status will therefore cover the customer for its indemnity obligation.
The problem is that when you explain this to the customer, you’re going to get a challenge to the indemnity clause. The insurance procurement clause serves another purpose; it acts as a waiver of subrogation because the insurance carrier can’t sue its own insured.
There are several “protective” provisions in the alarm contract and they overlap in purpose and coverage. We can give here and there with modification, but need to retain as much protection as the contract can provide.
Perhaps the best answer you can provide the customer regarding the insurance procurement clause is not the dumbed-down version, but the more legally complex reason. The alarm contract contains various provisions that acting together shift the risk for liability to the customer, not the alarm company.
If the customer wants the alarm company to assume more or total liability for loss the cost of the alarm services are going to increase proportionately to the risk, and no customer is going to want to pay that cost.