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Comments on Do you need E&O when you have K&K Contracts

May 29, 2024
Comments on Do you need E&O when you have K&K Contracts from article on May 21, 2024
     I have administered over 400 hundred claims for Security America over the last 12 plus years which makes me one of the most acknowledged experts in our industry to comment on this question.
I have spent many MILLIONS of dollars for the defense costs alone on these 400 plus claims.
         But here are two examples of how a claim can go beyond what the writer thinks should happen
  1.  Alarm company does not use a K&K contract. A person on the job site falls into an open ditch at a construction site after walking through a gate that was supposed to be closed at all times. In or around the ditch was a conduit with a drag line hanging out at the gate location and may not have been secured well enough and the plaintiff alleges that he tripped on the string. The plaintiff is claiming personal injury and has pre-existing conditions but because of faulty care and plaintiffs own inability to follow doctors directions he gets an infection and is just hours away from losing his leg.
         To minimize the exposure to the alarm and insurance program a team of doctors is contracted for the defense to evaluate the cause of origin and contribution (if any) caused by the latest event. Of course there is a another claim from the wife for lack of consortium.
          The alarm company had a number of excuses not to use  a contract, the best was that they were not installing an alarm system, but rather just going some access control that would not have any RMR. (Ken, you and I have preached for years that it makes no difference and this is just another example).
                The bottom line is that we negotiated a settlement from millions to under $500,000.00 but even if we prevailed to zero, the defense costs with the doctors was in excess of $150,000.00
2.  Alarm company has a K&K contract. There is a fire loss and it is a subrogation claim by the subscribers insurance company. Loos is in excess of 10 Million dollars. The alarm company immediately notified its carrier and the preservation of all documents and central station records begins.
              Three days after the loss, the subrogation firm for the subscriber calls to put the alarm company on notice. The alarm company politely refers them to me.
             I inform them of the existence of the (K&K) contract (which was a timely version and immediately began to share the contract, discuss the contract term and conditions and I started to demand compliance with the protective provisions (your readers should never do this on their own, they must reply on their attorney or a seasoned claims manager that understands our industry) to limit the exposure of the alarm company.
                The subrogation attorney (who had experience with alarm industry agreements in the past) agreed with my view and did not file against the alarm company. However, this all changed because the subrogation firm did identify two other potential defendants and filed against them. As the case moved along the subrogation attorney (years later) called to apologize but they were filing suit against the alarm company because if they didn't the other two plaintiffs would have and it would have been worse for the end-user carrier to have to explain why even though there was a duty to defend against the end-user and the other two co-defendants.
            So even though we had the K&K contract and skirted the initial claim, I had to engage local council to appear and file the usual motions and we prevailed with no direct loss but a defense bill in excess of $20,000.00.
  3.  I will throw in a third. This claim was a medical pendant. The customer of sound mind signed a contract that was sufficient, but the system failed to detect a fall and the customer passed away.
            The facts surrounding the loss were not favorable and it was agreed that we shouldn't get near a jury or discovery where the plaintiff would know what we knew. The multi-million dollar claim was well supported.
            The result was a settlement for under one million and defense costs was under $30,000.00
The theme here is that unless you are ADT that may self-insure for the first 5 or 50 million, your alarm company can't even begin to digest these fees just for the defense costs.
             So I will say it again, as an industry we don't do anything on a jobsite without a preexisting signed contract that is either written by K&K or approved by your carrier. It makes no difference if it is for an alarm or intercom. It makes no difference if it was free, leased, sold, monitored, not monitored, with RMR or not. I have tens of examples that cover a lot of different scenarios, I have almost heard them all.
                Btw, I currently have a claim that I am administering for a house that froze and had water damage. The central station has an K&K contract, the installer has no contract rather is relying on the central station agreement. The central station carrier is Security America, the alarm company has a standard G/L carrier with no E&O. Security America has an experienced attorney as representation, the alarm company does not. If the alarm company attorney follows my lead they stand a chance, but that carrier is under no obligation to follow the wishes of the alarm carrier, they can settle within policy limits at any time and may believe that an early exit is in its best interest. This is what happens when you use a carrier that is not dedicated to the well-being of our industry and the continued existence through court decisions that our contracts have value and are not unreasonable.
     On a final note, I have told our underwriters to non-renew policies for companies that sustain a loss and does not have the right contracts in force.
   Bart A. Didden, President
U.S.A. Central Station Alarm Corp.
Port Chester, NY
Milford, CT
St. Paul, MN
Another comment
           Responding to Anonymous’ question on May 21st when he asked why he needed E&O insurance when he had a Monitoring Agreement.  I have never been sued over a professional issue, but I did serve as a City Councilman in the ‘90s.  We got sued constantly, at least 20 times a year.  Although we had governmental immunity and none of the law suits were for things that we were directly involved with, we still got sued.  Our attorneys typically got the suits dismissed quickly but it cost us money in legal fees.  A few suits took years to dispose of and legal fees reached $100,000 or more.  One big advantage of having E&O insurance is that the insurance pays these fees.  Ken’s group is many times retained by the insurance company, so, if you use the right carrier, you can have Ken defend your claim on the insurance company’s tab. 
 Mitch Reitman  817 698 9999 XT 101 
Reitman Consulting Group
5408 Woodway Drive|Fort Worth, TX 76133 | 817-698-9999 o | 817-698-0009 f
Another comment
     The 2nd UL Jewelry store system I had done in December 1985………..
     The new owner/partner of the store approached me and wanted to know how good the system was:
*UL #2 Grade AA with line security with direct connection at that time into the Police station in a small University type of town.
     I told the owner/partner it was the finest I could provide!
His response was GOOD! We just got our insurance quote and going to cancel! It way to expensive!
My response was: The moment you cancel your insurance, you will get my letter of termination of service – I am NOT your insurance company.
     They are still a valued (even though finest ) customer!
  **OH – I do have to throw this is: The UL inspector (Tom Sherapata) decided to pick this location as one of the annual audit locations. I walked in with him and this owner/partner looked up and remarked “oh, I’m glad to see you, the system has not been working for the last month and I have not gotten around to calling you” – I turned PALE!!! (This location had been hit with over 750K loss and the insurance company demanded a UL certificate after the vault with both safes had been successfully attacked over a holiday weekend).
The previous system did not even have a backup battery in it!!!
           Then, the earlier lawsuit that took over 5-years out of my life………
3-judges it went through with 2-juries…….
The Judged called both parties up to his bench, put his hand over the microphone and stated to me while shaking his finger at me “Mr. Pfefer, you are going to settle this case – otherwise you are looking at bankruptcy!”
           What he really meant was if I lost I would be liable for ALL legal fees as the loss to the subscriber was really about $45,000.00

The LEGAL FEES WAS WHAT WOULD BE THE EXORBITANT AMOUNT THAT WOULD HAVE TO BE PAID IF THE OTHER SIDE SUCCESSFULLY SHOWED FRAUD (stating I had induced the ‘poor pawn shop broker’ into signing a fraudulent contract as my alarm did not prevent the loss he had).
     My insurance carrier stayed with me and the jury (2nd one that was picked) found FOR Jade Alarm Co. – and the pawn shop broker had to pay his attorney fees as well as Jade Alarm Co.’s AND the penalty for breaking the alarm contract (on the stand he stated he would not pay Jade Alarm one red cent of cancelling the alarm contract).
         Then there was the lawsuit that quickly got dismissed where Jade Alarm Co. was accused of installing a defective SHEER WIND DETECTION SYSTEM! A WHAT??????? My Insurance Broker wanted to know if I even knew how to do such an animal!!!
I informed the insurance broker I had worked (yes, myself and another tech) on the firm’s DSX access control system and nothing else!
     The employee not knowing a sheer wind was in the area (he had been picked up off the ground and slammed against the side of a brick building and then transported to the hospital with sever injuries) was nothing Jade Alarm Co. serviced equipment could have detected!
    My insurance broker showed the attorney our agreement (and him knowing the attorney through church did not hurt either) and the case ‘went away’!
     So, any alarm company who does not have a GOOD ALARM agreement with PROPER insurance is in my humble opinion (*but, what do I know) JUST PLAIN CRAZY!!!
  Your humble scrivener………
Joseph (Joe) Pfefer
Founder & C.E.O.
(Chief Encouragement Officer)
Jade Alarm Co.
Another comment
           A very good question.
           In our industry we need contracts written by sharp attorneys that protect us as much as possible in the event a system you sold malfunctions.
In addition you can never be sure how a jury may decide or a Judge may rule you responsible.
        Do you want to take the chance to lose some or everything you have worked for.
            That is why we need properly written contract AS as Insurance.
You should also belong to an alarm association so you can stay on top of how to run a successful business.
Rod Uffindell
            You need E&O coverage because you can’t stop someone from suing you and the moment they do it’s going to cost you lots of money.  Alarm E&O coverage will cover you for defense costs, and you should rely on that insurance if you are even threatened with a claim.  Keep in mind that not all claims may be covered and not all claims will be within your coverage limits, so that’s one great reason to use the Kirschenbaum Contracts.
            The second great reason to use Kirschenbaum Contracts is that the contract may very well be a deterrent to you getting into a claim or lawsuit situation.  Most subscribers and lawyers don’t want to waste their time if they are convinced a claim against the alarm company is futile.  A Kirschenbaum Contract is the best contractual deterrent.  You may not even realize how many claims are not made against you simply because the subscriber and its counsel take the time to read the contract. 
            Of course contractual protection is not insurance.  You need the E&O coverage for more than just defense cost.  Your E&O will pay the claim when unavoidable.
            Update your contracts; update your E&O coverage. 

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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