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follow up on indemnity and managing dealer risk
September 26, 2017
follow up on indemnity and managing dealer risk from article on September 18, 2017
    In the September 18, 2017 article you mistakenly state the following....
    "It's not what your insurance carrier wants either, especially since with claims within policy limits it's your carrier who receives all the benefits of the indemnity clause [other than your deductible]."
     The alarm company should be greatly concerned BEYOND their deductible for many reasons, but I will only state three here and now.
  • Loss Runs. Any claim has the potential to affect future policy rates at a minimum. Typical Loss Runs continue for five years and be costly indeed. The alarm dealer should consider themselves responsible for their own Risk Management and the manager of their future insurance rates. 
  • No claims should equate to no insurance rate increases. It is also timely to note that as a single program insurance company that sheds the greatest amount of exposure to Lloyds, SARRG is not impacted by natural disasters such as hurricanes or floods.
  • Cancellation or Non-Renewal. If an alarm company adopts the attitude that "I pay my premium so who cares what happens next after the deductible", is in dangerous position because may structures that have a system installed in them are worth more than 5 million when its a required fire system which is the typical maximum of coverage offered without going to a specialty market. Additionally, if you operate your company with great disregard (and don't use Ken's contracts) the chances of having more than one event in a policy year grows as well. 
    So if the alarm company has the base policy of 1M / 2M aggregate, any indemnity amounts after 2M are the problem of the alarm company and not the insurer.
    So Ken, your statement "other than the deductible" is not a demarcation point for the alarm dealer, it's just the beginning. 
Bart A. Didden, Executive Claims Manager
Security America Risk Retention Group - SARRG
Security America Risk Purchasing Group LLC - SARPG
    I did not mean to suggest that alarm dealers should care about the indemnity provision only in regard to the deductible.  What I did mean to say, and did say, is that the indemnity provision is crucial to the insurance carrier for the alarm dealer so it can pass along the defense and damage award, if any, and as long as the claim is within policy limits, it's only the carrier that is affected, other than the dealer's deductible.
    But, every word Bart writes is correct and worth noting.  Alarm dealers have a very selfish reason to avoid claims and be in position, through the Standard Form Agreements, to successfully defend claims.  There are two components to reducing the consequences of claims.
  • use of the Standard Form Agreements [the All in One forms] will reduce your chances of getting sued and will increase your chances of successfully defending the claim.  You have control over this component; use the Standard Form All in One Agreements
  • how the claim is addressed by your E&O insurance carrier and how its handled by its assigned defense counsel.  Typically you have little control of this component, though you can ask [demand] that the carrier retain K&K as defense counsel or consultant to work with assigned defense counsel.  
    E&O insurance is a necessary expense in the alarm industry.  As Bart points out, there are steps you can take to reduce the expense.  If you completely ignore these steps you risk not only increased premium expenses but the inability to even find a carrier willing to write your insurance.  Unlike auto insurance, there is no assigned risk pool, only carriers that charge huge rates because the carrier is willing to write dealers who ignore every wise suggestion to reduce exposure.
    The curious thing is that business practices that reduce liability exposure are exactly the same practices that increase the value of your business; increase equity by creating more value in your business through the use of proper contracts.  Maybe someone can explain why this doesn't make sense.


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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
516 747 6700