KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and white list ken@kirschenbaumesq.com ******************************* Representations that cause problems and best practices August 29, 2019 ********************** Representations that cause problems and best practices ********************** Ken, I recently had a new claim pop up and it’s a little different from the normal. Alarm company installed a system in a residence years ago. The alarm company sold the account to ASG and ASG sold it to ADT. The sales agreement between the installing company and ASG had a clause that the seller stated that the systems installed were in good working order and if not ASG had no liability, the liability remained with the original installer. The claim is that the alarm system installation was the cause that the home’s plumbing caused the corrosion of the pipes in the home. The home owner called ADT looking for restitution. WHY? Because the home owner was acting on the advice from (get ready) their plumber (as an expert), that the cold water pipe grounding post was the cause of the corrosion. ADT, rather than tell the home owner to seek restitution from their own homeowners policy decides to get involved. ADT hands the claim to Gallagher/Bassett(GB) (a company I asked SARRG to terminate claims handling back in 2005/6 because they would pay anything regardless of any contract provisions) and makes a claim under the sales contract through ASG back to the Installer. My action, simple - claim DENIED. This is based on the NEC and the manufacturers installation instruction manual. GB, like many other claim managers (Hartford, Scottsdale etc) just pay when the amounts are small and penalize the alarm company on the renewal. Know your insurance carrier, not just your local broker who has the same amount of useless knowledge about your business as your plumber. and remember no contract-no service Bart A. Didden Executive Claims Manager Security America Reassurance Group, Inc. - SARG 877-872-1266 bdidden@securityamericarrg.com *********************** Response *********************** You raise a number of great issues. Dealers need to be very careful when selling alarm accounts. Most alarm company owners are familiar with the concept of a Guarantee backed by a Hold Back. They understand that this is for attrition of accounts. It’s an accepted practice, though by no means universal; it’s a matter of agreement and contract. The Guarantee comes in two varieties. The seller’s liability can be limited to the Hold Back, or it can be unlimited. Take your pick. Sellers generally understand that they will lose some of the Hold Back. But they are thinking that their exposure is limited to attrition. That’s not the case when a buyer requires representations and warranties from the seller. Be wary, if your buyer is litigious you could be setting yourself up for a lawsuit and a claim for all or more than the purchase price. In Bart’s comment the original installer, who sold the account, represented that the alarm system was properly installed and working. Since I am sure more than one account was sold, that’s a pretty bold representation to make, especially if the seller isn’t a one man company and did the installs himself. Some buyers are very aggressive in their demands for representations. Don’t be stupid. If you make a representation you better be certain it’s correct. Most claims against alarm companies allege defective design, installation, service, monitoring, etc. Whatever it takes to make a claim and the broader the allegations the better. Throw enough crap against the wall and some of it is likely to stick. Reaching back to the original sales contract for this representation was a low blow. How a corroded water pipe becomes an alarm company’s problem is another mystery. Bart is correct that you have to take a tuff stand on claims. If you don’t you can expect more claims and you can expect to pay more for insurance, if you can get it. Best practices, use the Standard Form Agreements, get E&O insurance from SARG and use K&K when ready to sell your alarm accounts. We won’t let you make problematic representations without basically requiring you to make them over our objection and against our advice. Then you deserve what happens next. ****************** To order up to date Standard Form Alarm / Security / Fire and related forms, click here:www.alarmcontracts.com ************************* CONCIERGE LAWYER SERVICE FOR THE ALARM INDUSTRY PROGRAM 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. *********************** NOTICE: You can always read our Articles on our website at ww.kirschenbaumesq.com/page/alarm-articles *********************** THE ALARM EXCHANGE
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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