Question:
Ken - Have read with interest your article in Security Dealer for December.
We find the Indemnification clause the hardest to retain in our contracts with large sophisticated customers.
I am interested in your statement, "Third party lawsuits are rare; most claims or lawsuits are from the subscriber or its insurance company suing in subrogation, which is different from a third party claim, so the provision is not often needed."

Would you explain further the underlined phrase?

Keith M. Ladd
The Protection Bureau
197 Philips Road
Exton, PA 19341


Answer:
     I agree with you that the single most questioned provision in the alarm contracts is the indemnity provision.
     You want to know the difference between a "third party" claim and one brought by the subscriber or its insurance carrier.  The contract you enter into with your subscriber creates a contractual duty owed by you to the party with whom you are in contractual privity, your subscriber.  The nature or scope of your obligation (or duty) is defined by the terms of the contract.  While creating certain performance duties the contract also serves to further define the duties and obligations, and by doing so limits your exposure to liability.
     If you breach the contract you can be sued by the subscriber because it is in privity of contract with you.  If the subscriber has insurance that pays a claim the carrier generally has subrogation rights which it acquires by the insurance contract (policy) and by operation of law.  A claim by the insurance
carrier however is treated as a claim by the subscriber.  As subrogee of the subscriber the insurance company stands in the shoes of its subrogor (the subscriber).  So a lawsuit by the subscriber or the carrier is a suit by one in direct contractual privity of contract with you.
     A third party claim is one brought by a party who is not in privity of contract; someone foreign to the contract.  Such a party can claim that it is an intended third party beneficiary of the contract, or that you owed it a duty outside of the contract (this would be a tort - negligence - claim).
     The remark that I made that you asked about was, as I recall, in connection with comments about the wording of indemnity clause.  Many clauses call for indemnity for "third party claims" and I suggested that the clause be broadened to include all claims, so that it could be invoked even if the
subscriber or its carrier made a claim (and there are certainly better clauses to protect you in that event, but the there is no reason to limit the language of the indemnity clause).