Every properly draft security contract will contain an Indemnification
Provision.  This provision will be required by all insurance companies that are
wise enough to require contracts between their insureds (the alarm and security
companies) and the subscribers.  It is this provisions which also seems to
generate the most scrutiny and objection from subscribers.  When I am asked by
the security company to negotiate with the potential subscriber and close the
deal I typically agree to omit the Indemnity Provision from the contract.  This
article will review the provision, discuss why it's in the contracts, why I
agree to take it out and what consequence might follow its omission from the
contract.
       My standard contracts [ Alarm Contracts  ] contain the following
provision:
              INDEMNITY:  Lessee agrees to and shall indemnify and hold
harmless Lessor, its employees, agents and subcontractors, from and against all
claims, lawsuits, including those brought by third parties or Lessee, including
reasonable attorneys' fees, and losses asserted against and alleged to be
caused by Lessor's performance, negligent performance or failure to perform its
obligations under this agreement.
       Though my paragraph containing the indemnity clause contains more than
just the above quoted language, the quoted language constitutes the Indemnity
Provision.
       The provision is an important one because it offers the opportunity to
recoup a loss should a third party to the contract prevail against the security
company.  Keep in mind that the contract is between the security company and
the subscriber.  Arguably someone who has not signed the contract would not be
bound by the contract provisions, which typically will include the exculpatory
clause and other protective provisions.  A perfect example of a non party who
might make a claim is a guest in a home which is burglarized, or a tenant in a
building where only the landlord is the subscriber.  Now I know that you are
reading this and thinking that these third parties can't prevail against the
security company because they are not 'intended third party beneficiaries of
the contract" between the security company and its subscriber.  That may be
true, and most often is the case.  However, that may not prevent a claim or
lawsuit from being brought, and there could be any number of factual scenarios
where a non contracting party can establish liability against the security
company.  The indemnity provision provides from reimbursement for the expense
of defending claims and lawsuits, as well as reimbursing for damages which the
security company has to pay.
       It is just this benefit to the security company that causes so many
subscribers to object to the provisions inclusion in the contract.  Their
argument is that the provision exposes them to unforeseen damages since they
cannot anticipate who might seek to claim third party status and make a claim
against the security company.  While accepting the other protective provisions
in the contract which clearly prevents them from making a successful claim
against the security company and also requires that they insure against the
loses that the security system is intended to detect, they object to the
potentially limitless exposure that the Indemnity Provision presents.
       When this is the only barrier to making the sale I typically agree to
omit the Indemnity Provision from the contract.  My standard contracts contain
sufficient other language to protect the security company, and also makes it
clear that the security company and the subscriber do not recognize any
"intended third party beneficiaries" of the contract.  Third party claims are
rare; most claims or lawsuits are from the subscriber or its insurance carrier
suing in subrogation [which is different from a third party claim], so the
Indemnity provision is not often needed.
       I will also more readily omit the provision when I know that my client
has proper errors and omission insurance.  Since the security company carries
insurance that provides defense and damage coverage the indemnity provision is
not usually necessary for the protection of the security company.
       This brings us to the potential consequences of omitting the provision.
First and foremost, be certain that you do not vitiate your errors and
omissions coverage by deleting the Indemnity Provision.  You need to check with
your broker or carrier.  While most carriers require that you produce a
contract and represent that you use the contract in order to approve you for
underwriting, coverage of a claim may not be conditioned on your actual use of
the contract in the approved form; in other words, if you use the contract in
approved form most of the time you will have coverage when you need it if the
subscriber suing you has a contract with omitted or changed positions.  The
removal of the Indemnity Provision should not be a clause that prevents your
coverage.  One word of caution.  Even if your carrier will not refuse to defend
a claim for modification of the approved contract terms there may be changes
that you make that would cause them to justifiably take that position, so
consult knowledgeable counsel or the carrier before making the changes.
       Another consequence of omitting the Indemnity Provision is that you may
leave yourself exposed if the claim against you exceeds your insurance
coverage, or for the amount of your deductible, or if your carrier for any
reason does not provide coverage.  But keep in mind that the Indemnity
Provision is only as good as the party providing the indemnity.  If you have a
claim or lawsuit against you it is still your obligation to defend and pay the
damages, if any.  Indemnity is reimbursement after you have incurred the
expense.  If your subscriber is no longer in business or financially able to
reimburse you then the indemnity isn't worth the paper it's written on.