Insurance and a Well-Worded Contract Offer Protection
Against Potentially Losing Everything
As a business owner, you must have a concern about the liability you face every day by choosing to
install fire and security systems. Could the next phone call be a business-changing event? Will a missed
signal or failed sensor cause you years of sleepless nights, lower sales and potentially put you out of
business? These are real concerns if you don’t have the proper protection. What protection, you may
ask? The answer is twofold - contracts and insurance.
Contracts. Every industry attorney and consultant will tell you the
same thing: Your contracts are the assets of your business. A wellworded, standard industry contact will provide you with the protection
you must have when doing business in the security industry.
But are they really necessary?
Yes. Every alarm company needs to have written contracts with its customers. It is unlikely that your company will be able to get
insurance from a reputable insurance carrier (especially one knowledgeable about the alarm industry) unless you have written
contracts containing certain key provisions. Another important reason to have a written contract is to facilitate your company’s
ability to obtain financing. Finally, having written contracts just makes good business sense. Contrary to popular belief, a customer contract is important, not because it may some day help you win a lawsuit, but because it helps your company avoid lawsuits
on a continuing basis.
Now that we’ve established that customer contracts are necessary - let’s go over some contract basics...
Essential terms and conditions of any good customer contract
While no two states have identical laws, and no two companies operate the same way, it is still
possible to identify those terms and conditions that should be included, or at least considered,
in writing a customer contract.
• Limitation of liability/liquidated damages
In any business, it is inevitable that something occasionally goes wrong. In the alarm
business, that “something” can mean that valuable property may be stolen, that people
may be injured or killed, or that homes may be damaged or destroyed. It is essential,
therefore, that your company make every effort to limit its liability to the greatest extent possible. Contracts approach this
issue in one of two ways: a limitation of liability provision or a liquidated damages provision. Regardless of which provision
your company chooses to use, such a provision should appear on the contract in large, bold print.
• Third-party indemnification
In attempting to limit the liability of your company, it is also important that the customer agree to indemnify and defend
your company against any claims brought by third parties (including the customer’s insurance company) in connection
with the operation or monitoring of the customer’s alarm system.
• Three-day notice of cancellation
Any consumer contract entered into as a result of a door-to-door sale must include a provision advising the customer of his
or her right to cancel the contract at any time before midnight of the third business day after the sale. This right is provided
to consumers any time any type of sale of goods or services is made to them any place other than your place of business. A
statement regarding the customer’s right to cancel and a sentence advising the customer to review the attached notice of
cancellation must appear in bold print on the first page of the contract, in immediate proximity to the customer’s signature.
Essential terms and conditions of any good customer contract continued...
• Payments, Charges and Fees
If the customer is purchasing the system, the contract should clearly set forth the amount the customer has agreed to pay
for the system (even in a sale, however, the contract should always provide that you retain ownership of the transmitting
device/digital communicator).
• Warranty provision
The contract should contain a provision explaining the warranty, if any, given by your company and disclaiming any other
warranties. If the contract does not contain a provision disclaiming all other warranties, then the contract may contain
numerous statutory warranties which were never intended by your company.
• Operating Procedures
The contract should also state exactly what your company and the customer agree to do, and not do, regarding the
installation and monitoring of the alarm system. The obvious starting point is the parties’ obligations regarding installation. Initially, the customer should acknowledge that he or she has the authority to permit the installation, especially if the
customer does not own the premises. The contract should contain an estimate as to when your company will install the
system, but also make it clear that you are not responsible for any delays. Finally, the contract should give the customer a
limited number of days to object, in writing, if he or she is not satisfied.
• Assignability provision
If you ever decide to sell your contracts, the buyer will want to know that the contracts can be assigned without obtaining
your customer’s consent or giving your customer prior notice of the transaction. Although the general rule is that contracts
are freely assignable unless the contract provides otherwise, to be safe your contract should clearly provide that you can
assign it to a third party without the customer’s consent. Conversely, the customer should not be able to assign the contract without your consent. It is also advisable to further provide that a sale of the customer’s premises does not relieve the
customer of any of his or her obligations under the contract, again absent your consent.
• Miscellaneous
The customer contract provisions that comprise the final category of terms and conditions are lumped together under
the “miscellaneous” heading, not because they are any less important, but because they do not fit neatly into any of the
previous categories.
A contract must identify who is authorized to sign the contract on behalf of your company. If your contract provides that it
will not be effective until signed by a particular person or by someone in a particular office, it is necessary that the appropriate individual sign the contract on behalf of your company (a better approach is to provide that the contract becomes
effective when signed by an authorized person or when the company begins to install the system or provide service).
Finally, be sure to consult with an attorney that specializes in the security industry to ensure
you have the proper contracts in place. With technology changing so rapidly, we recommend
having your contracts reviewed regularly because a good, solid contract from 3 years ago
may not be so good today.
Insurance. Most of us have it and we wish we didn’t need it.
Wisdom and experience tell us to never do business without it.
With proper coverage, after you pay your deductible, your
insurance company takes on the costs to defend your claim and
pay any settlement.
Partnering with Security America Risk Retention Group means you are partnering with an
insurance company owned by security professionals, giving you the right protection for your security business! If you have questions about your coverage, using the proper language in your contracts, how to avoid liability claims, call the Security America
RRG team today. You have worked too hard building your business to leave its protection up to an insurance company that
doesn’t understand your needs!
Security America
RISK RETENTION GROUP
Insurance Specific ToYour Industry
[email protected] | www.SecurityAmericaRRG.com | (866) 315.3838
8390 E. Crescent Parkway, Suite 200 | Greenwood Village, CO 80111