Security Sales & Integration September 2022 - 80

EXECUTIVE DECISIONS
Legal Briefi ng by Ken Kirschenbaum
ken@kirschenbaumesq.com
Identifying Central Station
Indemnity Issues
If a central
station
operator makes
a mistake on
a signal, fails
to dispatch
or delays
the dispatch
or does
something
else the
customer (or
its insurance
carrier) thinks
contributed
to the loss,
you and the
central station
are likely to be
sued.
▶ MOST LIKELY you have agreed to indemnify
your central station. Th at 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. Th e 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
Ken Kirschenbaum, an
SSI Industry Hall of Famer,
has been a recognized
counsel to the alarm industry
for 45 years and is
principal of Kirschenbaum
& Kirschenbaum, P.C.
(kirschenbaumesq.com).
The opinions expressed in
this column are not necessarily
those of SSI, and not
intended as legal advice.
80
readily accept this indemnity undertaking; it
seems contrary to accepted allocation of risk in
construction settings. In typical construction scenarios,
the subcontractor indemnifi es the general
contractor (GC), architect and owner; the GC indemnifi
es the owner and architect. In a homeowner
situation, the GC indemnifi es the owner and
the subcontractor indemnifi es the GC. A contractor
working directly for a homeowner indemnifi es
the owner. All this gets turned around in the alarm
industry contract world.
Your subscriber is indemnifying the dealer; the
dealer indemnifi es 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
Security Sales & Integration SEPTEMBER 2022
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. Th e 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. Th e 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 diff erent 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
carries 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.
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Security Sales & Integration September 2022

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