Should Alarm Dealers Indemnify Their Suppliers?
When and how are indemnity contracts applied in the alarm industry?
SHIFTING the burden of defending and paying claims through indemnification provisions is not unusual in the alarm industry. By contract, parties can require one to indemnify the other; even for negligence; even for sole negligence; even for gross negligence. So the properly worded alarm contract will require the subscriber to indemnify the dealer.
Often the indemnity is limited to third-party claims; those brought by others who are not party to the contract, such as tenants and neighbors of the subscriber. Dealers are typically required to indemnify their central station and this indemnity would include claims by the dealer’s subscribers or others claiming loss as a result of the subscriber’s failed alarm system or alarm services.
Dealer programs often require participants to indemnify the program. Why? Because the dealer is the one contracting with the subscriber, not the dealer program. As well, certain vendors to the alarm industry that provide services to the dealer’s subscribers require indemnity from the dealer. This is typically seen with vendors providing communication pathways for transfer of data or signals. So a manufacturer that also maintains a server and provides software to facilitate data transfer will require the dealer (and subscriber using the service) to indemnify the vendor.
But what about a manufacturer of alarm equipment? If you want to use the product should you have to indemnify the manufacturer if the product doesn’t work? Consider, for example, a clause like: … any failure of the products to detect and/or warn of the danger for which the products were designed or any other failure of the products whether or not such damages are caused or contributed to by the sole or joint negligence or fault of [manufacturer name].
Let’s try and understand the rationale for the manufacturer shifting damages for the manufacturer’s liability for defective product to the dealer that uses the product. I have a Mercedes I bought from a dealer that is authorized to service the vehicle under warranty. Let’s say that vehicle has an inherent defect, the brakes suddenly don’t work, or all 2015 vehicles have a computer glitch and stop running at a particular date and time. Do you think Mercedes dealers have agreed to indemnify Mercedes for any claims that may be brought against the car manufacturer for damages? It would surprise me – so much so that I didn’t bother to check it out.
Yet, as I have discovered, some alarm industry manufacturers are requiring their dealers to indemnify them.
To further illustrate the importance of provisions such as the sample above, consider a Connecticut case where an alarm manufacturer was sued for strict liability when a fire alarm component it manufactured allegedly caught fire and caused an unoccupied dwelling to burn down. In that case, the manufacturer was successful defending against the strict liability claim because the plaintiff (of course, a subrogation carrier that had paid the builder) was unable to prove certain elements of strict liability. So the case got dismissed.
What if the manufacturer had an indemnity provision like the example provided and one of its dealers installed that system? Do you think this claim comes within the terms of such an indemnity provision? I do. If the manufacturer or its carrier in a scenario like that decided to pursue enforcement of that indemnity provision, I believe the dealer would look like a deer caught in the headlights – and end up as similar roadkill. Defending such cases isn’t cheap and if lost there would be more than just legal fees to indemnify.
So the question is why should an alarm dealer indemnify a manufacturer under these circumstances? I haven’t comprehensively explored how many manufacturers have similar requirements, but I don’t believe they are especially common. Therefore, I recommend you be aware they exist, realize how they could impact your business and liability, and shop around for agreements you are comfortable with.
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