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Comment to dealer indemnity of central station issues / register for licensing webinar
April 20,  2022
Webinar on assistance getting licensed
Webinar Title:  Filing for and renewing your alarm license
Topic Details:  Once you know where you need the license and what license you need, and you know you’re qualified, The Cmoor Group handles the minutia details filing for the license and has the software to monitor for renewal compliance.
When:  May 3, 2022 at 12 PM ET
Presenter:  Connie Moorhead, President of The CMOOR Group. or call 502-254-1590, ext. 101
Hosted by: Ken Kirschenbaum,Esq
Who should attend:  license holders, license compliance officers, owners, managers
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Comment to dealer indemnity of central station issues from article on April 7, 2022
            Your April 7, 2022 article about “Indemnifying your central station and what to do about it” is very interesting,
            I would say that we have experienced more notices of claims because of the action or non-actions of our dealers then your assertion of an operator error.
            But having said that, your discussion does not contain anything about the “quid pro quo” aspect of the fees that the central station receives from the total available fees paid by the end-user. The central station could in theory accept some of the concepts you state if the revenue distribution was different. I also think you are correct that the central stations carry more coverage then most of its customers, but that is a business decision on the central station’s part and not statute or best practices.
            Ultimately, what makes a difference is the end-user contract construction and its ability to extend its provisions to “agents” or “sub-contractors”, a.k.a. the central station.
            In my 40 years in this industry I have never looked to the installer for indemnity because my dealers are very diligent about providing USA alarm monitoring agreements signed by their customers. My approach is that if I have my contract in my hand, I would rather defend a claim from my contract which is a direct connect rather than subjecting my company to the thought process of a Judge wondering if the protection actually extends to the central station.
            The exception to the rule – If we didn’t get the contract from the dealer, then we look to the dealer not for indemnity first, but the contract on which we are to defend ourselves first. BUT, if the dealer does not have a contract with the end-user, or an altered contract that is worthless, we would look to the dealer for indemnity only as the last layer.
            After managing hundreds of claims for Security America, I will always prefer to manage my own defense of a claim rather than allowing the claims manager for the carrier of my dealer because while I don’t know as much as you, I certainly know a lot more than any claims manager in the business of insuring alarm companies.
            In the end, it's where I started out, it’s the “quid pro quo”. The more money I can get, the more risk I can assume or another way to put it, the more money I get, the more insurance I can buy.
Bart A. Didden, President
U.S.A. Central Station Alarm Corp.
Port Chester, NY
Milford, CT
St. Paul, MN
Pasco, WA
            Thank you for the two perspectives you bring to the table.  First as owner of a central station offering nationwide monitoring services [USA Central] and as an experienced alarm E&O claims administrator [Security America].
            I am not so sure we disagree on the issues. 
            We can agree that claims for alarm equipment or alarm services failure arises from both dealer error and errors at the central station.  Without any statistics in mind I agree that more claims likely arise because of dealer error than central station error.
            We can also agree that the dealer retains most of the monitoring charge, a good deal more in most cases.
            Most central stations carry more insurance than the average dealer.  It is a best practice because central stations are going to be sued not only for their errors but because of dealer errors, communication pathway issues and sometimes just because they are identified as part of the alarm service process; another deep pocket. 
            While you may not have ever invoked the indemnity provision in the Dealer Agreement you no doubt require your dealers to sign, not all central station owners or their insurance carriers and claims representatives are like minded.  In short, they won't think twice about invoking the indemnity clause, and not just when the dealer can't produce a proper contract with the subscriber. 
            But here's my thinking on the indemnity issue that is found in every central station Dealer Agreement.  The indemnity requires the dealer to indemnify the central station even for the central station's negligence.  In very few industries would this seemingly repugnant provision be acceptable; the alarm industry is one of them; the indemnity is ubiquitous in all central station Dealer Agreements.  A similar indemnity provision is found in the dealer's agreement with the subscriber.  All of the Standard Form Agreements have indemnity.  The justification for the indemnity is found in the exposure the central station faces for providing monitoring, which includes not only the same exposure the dealer faces when installing security or fire alarm systems that are monitored, but the additional exposure of actually providing the monitoring.  And, as you point out, it's the dealer who keeps most of the money paid by the subscriber for the monitoring services.
            But, the Dealer Agreement typically also has a provision that requires the dealer to carry specific insurance at specific levels of coverage.  One rational for limiting the dealer's indemnity to the insurance carried is that the central station has set the minimum coverage levels; the central station should therefore be willing to accept the insurance as the limit of coverage.
            So the issue is whether the central station should agree to limit the dealer's indemnity to the dealer's E&O insurance coverage.  I think the answer is yes, especially if the dealer has a proper contract with the subscriber and carries the insurance required by the Dealer Agreement.
            Another reason for limiting the dealer's indemnity to the central station to the dealer's insurance coverage when the dealer has complied with the Dealer Agreement and has a proper contract with the subscriber is that the central station has its own E&O coverage.  Central stations rarely name dealers as additional insures on the central station's E&O policy.  The Dealer Agreement however always requires the dealer to name the central station as an additional insured, and it's smart to do so especially if the dealer is providing  indemnity.  The insurance will back up the indemnity.
            If a claim exceeds the dealer's layer of insurance coverage the next level will be the central station's insurance.  The central station's carrier will then be looking to dealer for the indemnity, and the dealer will no longer have insurance because its policy will have been exhausted.  Taking this to its logical extreme, once the central station's insurance is exhausted the central station will again look to the dealer, and at this point the dealer will not have insurance left to cover the claim.  The dealer gets wiped out.  If the claim is big enough the central station is next to be wiped out.  All this for $50 a month in monitoring, of which the central station maybe got $12, and could have gotten $2.50 or less. 
            What's the answer?  You cannot eliminate all risk, but you can manage and reduce the risk so that even the most neurotic can sleep easy.  Use proper contracts.  Kirschenbaum Contracts™ are the gold standard in the alarm industry, simple as that.  Make sure you carry general liability with alarm industry E&O coverage.  Make sure your coverage complies with the central station's Dealer Agreement. 
            Finally, and where we started, insist that the Dealer Agreement be modified by limiting the dealer's indemnity to the dealer's E&O coverage.  If your central station won't limit your indemnity to your insurance you should move to another central station that will.  If you decide to use a central station that won't limit your indemnity and your reasoning is that you are saving money then you need to take every penny of that savings and increase your E&O coverage.  The better idea is to move to a central station who will agree to limit your indemnity to your insurance and who will sign the Rider to Central Station Dealer Agreement.  That Rider modifies and addresses what I consider to be the more important issues in the central station's Dealer Agreement.  If your central station won't agree to the Rider then you need to consider why, and if you're not satisfied you need to move to another central station.  There are plenty central stations on The Alarm Exchange who will accept Kirschenbaum Contracts™ with subscribers instead of the central station's monitoring agreement, who will accept the Rider to the Central Station Dealer Agreement and who will provide the monitoring services you expect at a price that you think is reasonable.  Don't be complacent and don't settle for less.  Your business and your piece of mind may depend on it.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301