Indemnity: What You Need to Know
A security company is a party to agreements that requires the firm to provide indemnity. Learn what you should expect the indemnified party to invoke its right to indemnity if the occasion arises.
Indemnification is when one party agrees to be responsible for another’s obligation. Typically it’s financial, and usually covers cost of defense and any damage award. The term “indemnity” or “indemnify” is not, however, descriptive enough to inform what the full extent of the duty entails. For example, an agreement to indemnify against claims or damage awards will not include the obligation to pay defense costs unless legal fees are specifically included. Cost of expert witnesses will not be included in the duty unless included in the indemnity provision. In the alarm industry, indemnity is commonly found in several situations.
Let’s start at the bottom of the totem pole. Dealers will require the subscriber to indemnify the dealer from claims, third party of all claims. A good example of how this may come about would be when the dealer has an intrusion alarm in a commercial building that shares a common wall with another business that is not owned by the subscriber and not included in the alarm coverage. Intruders successfully break into the alarmed building and cut through the common wall gaining access to the adjoining premises. The adjoining owner sues the alarm company, claiming negligence in failing to detect and prevent the intrusion in the alarmed premises. You can have the same scenario with a fire loss in the adjoining building.
Your first thought might be that the adjoining property owner has no privity of contract with the alarm company and thus has no viable claim in contract. Furthermore, since the alarm company owed no duty to the adjoining property owner there can be no viable claim for negligence. Even if you’re correct, and you’re not entirely correct, the dealer will invoke the indemnity provision and look to its subscriber to provide defense and coverage for the claim by the adjoining property owner.
Central stations will require dealers to provide indemnity. When a claim is brought by the dealer’s subscriber the central station will look to the dealer to provide defense and cover the loss. A claim by an adjoining property owner or third party on the subscriber’s premises would also be covered by the indemnity.
Manufacturers and communication networks require central stations to provide indemnity when the manufacturer is also providing a continuing service, usually automated, such as relaying radio or other communication signals to the central station oar to subscribers’ smartphones or other Web-connected devices.
You are a party to agreements that require you to provide indemnity. You need to know that the obligation has been agreed to, by you, and you should expect the indemnified party to invoke its right to indemnity if the occasion arises.
My office is presently defending a central station on a burglary claim. We tendered the defense to the dealer (both dealer and central station had insurance covering the loss). After much resistance the dealer’s insurance carrier agreed to pick up the cost of defense, which at the time it finally agreed to accept the indemnity was over $100,000. That’s just the lawyer fees so far (much of it spent fighting over the indemnity issue). In this case the central station’s insurance carrier (the one that hired my firm) recouped its expenses and got off the hook for the remaining litigation costs and ultimately any damages that might be awarded in the case, including those against its insured, the central station. The dealer’s insurance carrier is on the hook. As you can see the indemnity provision is potentially a potent and essential provision in the alarm contract.
Since you are, unwittingly or knowingly, agreeing to indemnity provisions you need to make sure that your insurance coverage is broad enough to cover your contractual indemnity agreement. Don’t guess or assume. Contact your insurance broker today. Ask for a response in writing and hold on to it.
Security Is Our Business, Too
For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.
A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!