KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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is additional insured demand killing your deal - how to handle it
January 19, 2021
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is additional insured demand killing your deal - how to handle it
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Ken,
I’ve been reading through some of your previous comments about adding clients as additional insured and I need a bit of guidance as this situation is occurring more and more frequently.
Our company was hired by a general contractor to install a fire alarm in a newly constructed multi-story apartment building. The general contractor signed the All in One Fire Alarm agreement and as the building will also be monitored by our central station, the property management firm, who is the owner’s authorized agent, has also signed the agreement.
We are seeing more requests for COI’s listing clients as ‘additional insured’ particularly where apartment buildings are concerned, and while we don’t have many clients who are currently afforded additional insured status, with the uptick in requests, we’re struggling to find a good resolution. Our insurance agent, rightfully so, cautions us against doing this but how much business do we turn away, particularly in a smaller area like ours, as clients find other central stations that will simply send the form over as requested? Is there some happy medium or perhaps another layer of protection we can afford ourselves with an additional rider/supplement to our contracts when clients request this?
Any suggestions you can provide are, as always, very much appreciated.
Best regards,
Stephanie
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Response
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The additional insured provision is one of the more potent provisions used to allocate and shift liability. The traditional response to a subscriber request to be named as an additional insured has historically, at least in the alarm industry, to reject the demand; alarm companies do not offer to cover their subscribers on the alarm company's insurance policy.
Before discussing this policy in more detail, let's first take a moment to understand what naming your subscriber as an additional insured means and the consequences, because there are many issues.
The first issue to arise is when you agree to name an additional insured and you don't. That's a breach of contract, and more than likely, a non-curable breach, entitling the subscriber to terminate the contract and stop paying you. Failing to obtain the insurance is also likely to expose you to the liability that the policy might have covered. In other words, you just became the insurance company.
You need to be careful what additional insured coverage you are being asked to provide. When we think of additional insured we believe it means that your additional insured, the subscriber, and whoever else you have named as additional insured, will be covered by your insurance policy to the extent that you are liable for the loss and covered by your insurance. In other words, the additional insureds do not have any more coverage or rights than you do as the primary insured. But it doesn't always work out this way because of the way the demand for additional insured is written. The demand for additional insured coverage might require your policy to be primary and non-contributory; it might demand that your policy be first in line to cover a loss on the property even if you aren't the cause of the loss and did nothing wrong. In this case your policy becomes the primary insurance for the subscriber no matter who is to blame. This kind of coverage would not be typical, but it's something you, your insurance broker and carrier should be careful to avoid if not reject out of hand.
Keep in mind that you may want to name your subscriber and others as additional insured on your policy even if there is no request to name them as additional insured. In fact, you should name any party as an additional insured if you have agreed to indemnify them. Your insurance needs to back up your indemnity, and you should seek to limit your indemnity to your insurance coverage.
Demand for additional insured status and for indemnity is becoming more common. Naturally alarm companies don’t want to lose business but on the other hand they also don’t want to risk their entire company on a loss or risk loss of insurance coverage or increased premiums. There needs to be a balance.
Recent negotiations have lead me to consider when you should depart from the historical position of “no indemnity” and “no additional insured”. I’ve counseled clients that if the scope of the job is installation only then they can agree to the indemnity and additional insured requirement, though they still have get approval from their insurance broker who may or may not have the authority to approve additional insureds without consulting with the carrier. For install only jobs I have approved the alarm company signing the General Contractor’s contract form [or owner or agent of owner’s form].
But after installation services of any kind, such as monitoring, repair service, inspection, have much different exposure and you should not be signing any general contractor or owner or subscriber form agreement, and you should not be providing any indemnity or additional insured coverage. Use your own form agreement, preferably a Kirschenbaum Contract ™ that requires the subscriber to indemnity you and name you as an additional insured on its policy.
See The Alarm Exchange, in the insurance category, for insurance brokers and carriers who, hopefully, understand what you look for.
If you have a subscriber who insists on indemnity and additional insured status for RMR services [after install services] I suggest you counter with an offer to obtain a separate policy for you and the subscriber, limit your indemnity to that policy and require the subscriber to pay your cost of the policy. Contract negotiations that involve legal issues, as opposed to business issues, should be handled by lawyers, not by you. Join K&K's Concierge Program today. Besides all other benefits you get a half hour of contract review and consultation each month at no charge, which is almost twice the cost of being in the Concierge Program. It's a no brainer and you should get off the fence and join right now by going to our website at https://www.kirschenbaumesq.com/page/concierge
If you want to discuss the Concierge Program please call our Concierge Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304 or SSpector@Kirschenbaumesq.com
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CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY
You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
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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
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