KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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How long should you maintain your E&O coverage after you sell your alarm business / register for webinar
December 14, 2024
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Webinar Announcement
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          K&K will present a free webinar on December 18, 2024 at noon ET on essential issues regarding E&O insurance coverage.  Be sure to attend or watch the webinar on the K&K website once updated.
Register here: https://attendee.gotowebinar.com/register/5871022000598911321
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Title:  Application for E&O coverage and related issues
Presented by:   Shawn Iverson of The Insurance Center
When: December 18, 2024 at 12pm ET.  Webinar will be posted on K&K website https://www.kirschenbaumesq.com/page/alarm-webinars
Who should attend:  Owner, GM, risk managers
Topics to be covered:
Do you really have E&O coverage?  Is there difference between general liability, professional liability, completed operations and Errors and Omission coverage?
Do all carries purporting to write E&O coverage for alarm/security companies understand the coverage
How important is detail in response on the application or renewal application
What are implications for less than accurate response to application questions
Do all carriers handle claims the same
How should you rely on your insurance broker and are they all the same
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How long should you maintain your E&O coverage after you sell your alarm business
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Ken,
     I have sold my service and monitoring accounts to another dealer and have essentially closed down my business, How long should I maintain insurance coverage and what coverages should I be maintaining?
  Anonymous
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Response
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          The snarky answer to you is, why don’t you ask the attorney who represented you on the transaction [or consult the internet if you represented yourself]? 
          But for everyone else, here’s my opinion. 
          You can be sued for negligence for a period of years that differs from state to state, but generally 3 to 6 years.  You could be sued during the statute of limitation period and you can actually be brought into a case as a third party after the statute of limitation.   
        Your E&O coverage is Occurrence based, which means the coverage date is the date of the loss.  There are two points in time that are involved, the date of the design or installation or service call where a mistake was made, and the date of the loss, which means the burglary or fire or loss involving whatever the system was designed to detect.  Your insurance covers you on the date of the loss [the occurrence date].  If you give up your policy then you don’t have coverage if that loss is after you give up the policy.  For that reason you need to continue to have E&O coverage after you sell the business, especially if the company will have assets after the sale or sale proceeds were distributed to owners as opposed to being consumed by creditors of the company.
       Indemnity and insurance issues are important issues when you sell your alarm accounts, or when you buy alarm accounts.  Most attorneys I encounter simply do not understand the issue and therefore do not deal with the issues satisfactorily.  It’s often a major source of contention when I am representing a Seller because my position is that a Seller shouldn’t have to continue the E&O coverage once it is no longer in the alarm business, and the Buying alarm company, who does need to have E&O coverage, should extend its coverage to the Seller. That concept is consistent with my position on indemnity, which requires the Seller to cover occurrences prior to sale and the Buyer after the sale.
     You will see all kinds of demands in Purchase Agreements requiring Seller to maintain coverage.  Sometimes it's referred to "tail" coverage, but that is a misnomer, at least when it comes to E&O coverage in the alarm industry.  Even though you won't be employing anyone, doing any installation or other alarm work, your premium will be the same as when you last had it; no discount, as I understand it.  You could continue to carry the E&O coverage until the statute of limitation expires, or if you have a K&K Standard Form Agreement rely on the one year contractual period for commencing an action.  But you are carrying insurance at full price when all you are concerned about is getting sued for a loss that hasn't occurred yet and won't occur until after you no longer own the contract.  To employ this logic you may want to continue carrying insurance on a car you sell just in case an accident happens and blames it on tire or other parts you installed.
     These are important provisions to consider in the Sale Agreement.  K&K understands these issues and is here for you; a call away when you’re ready to sell or buy.
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STANDARD FORMS  Alarm /  Security / Fire and related Agreements
 click here: www.alarmcontracts.com
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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
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com