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COMMENTS ON CHANGING THE INDEMNITY CLAUSE - SUBROGATION ISSUE FROM MAY 27, 2016 ARTICLE
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Ken,
    In regards to agreeing to change the Indemnity Provision to a re-worded provision requested by the Subscriber, I would also say that no knowledgeable buyer would purchase this contract.  As Ken points out in his response in the May 27 2016 article this contract exposes the Company to an unreasonable liability.  The basis for the limitation of liability and indemnification provisions is that alarm companies are not insurance providers, that is what insurance companies are for.
    If my due diligence people encountered contracts with these modifications we would mark them as exceptions and I doubt that the Buyer would buy them.  It is a common misconception among Sellers that all a Buyer is interested in is that the customers consistently pay on time.  A Buyer is counting on the customers to continue to pay on time, understand what the alarm company is and isn't responsible for, and not to look to the alarm company as a piggy bank when something happens.  That is why a prudent Buyer reviews every single monitoring agreement.  That is also why my due diligence people have Ken's alarm monitoring agreements tattooed into their brains.
    Accommodating a customer's needs is important, but accommodations such as these can expose you to material liability and drastically impair the value of your company.  Ken's contracts reflect years of experience in not only statutory law, but the results of litigation, and industry trends.  When a Seller calls me to sell his company and tells me that he uses "Kirschenbaum Contracts" the asking price goes up.  When a Buyer calls us to perform due diligence and says that they are "Kirschenbaum Contracts" our budget for the engagement goes way down.   Use Ken's contracts and think long and hard about doing anything to them other than signing them as the authorized representative.
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX
817-698-9999
www.reitman.us
TAX COMPLIANCE |   DUE DILIGENCE  |  VALUATION | BUSINESS ADVISORY SERVICES
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RESPONSE
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    Thanks for the endorsement.  You can get our Standard All in One Agreements at www.alarmcontracts.com
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Ken,
    Regarding the article [May 27 2016] where the subscriber wanted to turn around the waiver of subrogation, while I agree what they wanted to do is unacceptable, in the real world we wouldn’t turn down a contract just because a prospect won’t waive subrogation.  My answer is to just delete the waiver paragraph altogether.  That way, there is no way to construe it as mitigating the exculpatory or limitation of liability clause.  And just because the insurer is not banned from suing, it still stands in the shoes of the subscriber, meaning liability is limited.  Is it my optimum solution?   No (because it eliminates an ironclad defense), but it is better than losing a customer.
Robert Kleinman, Esq., Chief Executive Officer and General Counsel
AFA Protective Systems, Inc.
Syosset, NY   11791
www.afap.com
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RESPONSE
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    Generally, I agree with your analysis and business judgment.  You may be able to give up the Waiver of Subrogation provision, and the Indemnity Provision, but you need to be certain that other protective provisions are also not modified.  Since there are several protective provisions you need to be sure that most of them remain intact.  I agree that it's probably preferable to delete the entire Indemnity Provision and the Waiver of Subrogation rather than try and change the terminology, which is what was proposed in the modification in the May 27 2016 article.  Another consideration though is that your insurance carrier may not be happy with the change, in fact I can assure you it won't be happy with the change.  Maybe a company the size of AFA can get away with contract modification and keep its insurance, but not every alarm company has this luxury.  You should also make certain that your E&O policy does require, as a condition precedent to coverage for a particular claim, that you have an unmodified approved contract.  Most carriers don't require this, but check with your broker to be sure; don't wait for a claim to find out.  
    The indemnity provision is important to your insurance company because it can recoup its defense costs and any payment it may have to make.  At least that's the purpose behind the indemnity provision.  It works when the subscriber has its own insurance because that carrier will usually step up to the plate and take over the defense.  
    The Waiver of Subrogation is valuable to you and your insurance carrier because that provision, when correctly written [and you'd be amazed how fancy lawyers can screw the provision up], will preclude an insurance carrier from pursuing its subrogation rights by commencing a lawsuit against you.  The Waiver of Subrogation provision is one of the easier contractual provisions to get enforced.  In fact, Robert Kleinman referred to this clause as "an ironclad defense" and I agree with that.  Unfortunately the waiver of subrogation clause and the indemnity clause are two of the most focused on and objected to provisions by subscribers.  Exercise your business judgment carefully and cautiously; it's a litigious world out there.
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