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insurance underwriting and other issues important to alarm companies October 19, 2017

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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insurance underwriting and other issues important to alarm companies 
October 19, 2017
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insurance underwriting and other issues important to alarm companies
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Ken
    We focus primarily on commercial fire alarms.  We are often required [if we want the work] to sign either a general contractor's contract, electrician's contract or owner's contract.  We are compelled to forgo our contract, which is your Fire All in One.  These forms we are asked to sign squarely contradict all of the protective language found in our contract.  You have advised us, privately and through many articles on this forum, that if we are intent on getting the work by having to sign these other contract forms we should at the very least check our insurance coverage to see if we have some protection.
    Following your advice I asked our insurance broker about coverage and protection issues, and the response was:
    "You have contractual liability so the Hold Harmless is not a problem. The additional cost for adding specific Additional Insured for Primary and Non-Contributory is $150 flat; and the additional premium for Waiver of Subrogation is $150 flat. The Workers Compensation limit would have to be increased to 500/500/500 and that would be a small charge if anything."
    I was actually surprised that our carrier would even permit these items and I am curious if you can offer any additional information.
Thanks
name withheld
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Response
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    I am a bit surprised by the flexibility of your carrier since it is putting itself in a "primary and non-contributory" position.  This means that if there is a loss, your carrier, not the contractor's or owner's insurance policies, can be reached until your policy is exhausted.  So if the building burns down, your carrier [who apparently received $150 additional premium] is going to be paid out [for defense and for damages] before the building owner's carrier [who I assure you received a lot more than $150 for its insurance coverage] pays anything.  But that's your carrier's problem, not yours. 
    Here is your problem, and something apparently overlooked by your broker who states that your "Hold Harmless is not a problem" because your carrier is stepping up for $150.  Well it could definitely be your "problem" since your Hold Harmless is likely not limited to the insurance coverage.  It is equally likely that the loss could easily exceed your insurance coverage, leaving you holding the bag [or having the deep pocket, depending on how deep your pocket is].  
    So having insurance coverage to back up your contractual undertakings is a good idea, actually an essential idea.  You will have to negotiate that limitation on your indemnity, it won't be worded to limit your exposure.  A reasonable general contractor and owner will agree to limit your exposure to your insurance coverage, possibly requiring you to increase your coverage for the right to limit exposure.
    If your carrier is permitting you to waive subrogation rights for a nominal additional premium then that is also your carrier's problem.  But what about your loss run and future insurance availability and premium cost?  If there is a claim it's not likely going to matter much when the waiver of subrogation and primary position is factored in.  The loss run will pick up the claim and note whether you had exposure and any expense associated with the claim.  The carrier may then figure out that it made some bad underwriting decisions.  That will only be your problem when the carrier won't renew your policy or wants to jack up the premium.  Doing business with stupid carriers could end up being your problem.  You will continue to need insurance coverage long after some carrier decides not to underwrite you.  
    What can you do?  You can keep in mind that you control your fate when it comes to what contracts you will sign and what provisions you carefully review and negotiate.  You do need to care about your exposure and you do need to care about your carrier's exposure.  You create, define and limit the exposure by terms in your contract.  Using the Fire All in One [and the other All in One agreements] is your best practice when it comes to limiting exposure contractually.  That's why so many insurance carriers serving the alarm industry require a "proper" contract and why they often recommend or even insist that you use the Standard Form Agreements, the Kirschenbaum TM forms.  
    My advice?  Get out in front of this issue and use the Standard Form Agreements whenever possible.  If you don't have these contracts then you'll never be in a position of offering your contract to the general contractor, electrician or owner, and you won't have the proper language to request changes in their contract forms.  While you may very well end up signing their contract without changes, that will be an informed decision you make after at least giving it your best efforts to get your contract signed or its language included in other contracts.  Don't go down without giving it your best effort and fighting chance.
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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
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com