April 29, 2011
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Question
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Ken:
I have a job pending on your recommendation about deleting the clauses per the clients insurance company's request. The subscriber wrote:
"I sent both agreements to my insurance carrier, State Farm. They were in turn sent to underwriting. State Farm has refused to name Sentry as an additional insured, refused to waive the right of subrogation and further recommended that I keep my current alarm company. While I note that this contract does not require you to have insurance (only me), and your liability is limited to $250.00, if you have been in business 30 years as you told me, I have to assume you are doing something right."
Of course, I am using your agreements. I believe the additional insured clause is no big deal, as it more pertains to a leased system, and I am not concerned about the "software" being insured, but if I recall, you have said that as long as I have an E & O policy, while it is preferrable to keep the subrogation clause as is, it would be ok to strike that part out.
Thanks for all of your great information.
Robert
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Answer
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This issue causes some confusion and uncertainty. Two clauses are involved, the insurance procurement clause and the waiver of subrogation clause. Let me be clear. Both clauses are included in the Standard Form Contracts because they are important and provide protection to the alarm company. The clauses are related because they both deal with insurance and the shifting of responsibility for covering losses suffered by the subscriber.
These clauses are not the only protective clauses in the Standard Form Contracts, and therefore standing alone either one may not be essential. In fact, even if both are omitted the remaining provisions in the contracts should provide sufficient protection against liability exposure. But the risks are so great, and the potential damages so enormous, prudence dictates that every printed provision be retained in the contract.
The insurance procurement clause requires the subscriber to obtain insurance and name the alarm company as an additional insured. This provides a first layer of insurance coverage in the event of a covered loss and also prevents the subscriber's insurance carrier from exercising its right of subrogation against the alarm company because an insurer is not permitted to sue its insured to recover on a covered paid loss. If you have the insurance procurement clause, and the subscriber actually gets the insurance and names the alarm company, then you can omit the waiver of subrogation clause.
The subrogation clause permits the subscriber's insurance carrier to step into the shoes of the subscriber to go after anyone responsible for the loss. This permits the insurer to recover what it paid out on the claim, as well as the insured's deductible. The waiver of subrogation clause has a long history of enforcement and will work to prevent the subscriber's insurer from suing the alarm company for loss.
The insurance procurement clause is commonly objected to by subscribers, and often ignored even if left in the contract. I routinely counsel alarm companies that they can omit the clause if they have to in order to save a deal worth saving.
Regarding the waiver of subrogation clause, you should push a little harder to retain that provision in the contract. The provision may be more important to your insurance carrier who has to defend claims, and you might consider your exposure only your deductible and any excess claim over your insurance coverage.
In summary, you should try and keep both provisions in the contract. If necessary to save an important deal you can waive them. You will still be able to rely on the exculpatory and limitation of liablity clauses - and those clauses should not be waived.