Identification of central station compensation issues

Indemnification exposes you to all of your company’s assets unless you are smart enough to have created a separate entity to conduct the alarm business and follow the necessary company procedures.

Most likely, you have agreed to indemnify your plant. This indemnity covers not only errors you may have made during installation or programming, but also errors that the central monitoring station may make in responding to alarm signals.

You indemnify Central Station for its own negligence if that negligence involves your customer.

If a central station operator makes a mistake on a signal, fails to ship or delays shipment, or talks too much or does anything else that the customer (or their insurer) thinks contributed to the loss, you and the central station are likely to be prosecuted.

Central Station is going to demand indemnity from you, which means defending Central Station in the lawsuit and paying the damages assessed against Central Station.

Most lawyers, judges and people would not easily accept this indemnification undertaking; this seems contrary to the accepted distribution of risk in construction contexts.

In typical construction scenarios, the subcontractor indemnifies the general contractor (GC), architect, and owner; the GC indemnifies the owner and the architect. In an owner-occupier situation, the GC indemnifies the owner and the subcontractor indemnifies the GC. A contractor working directly for an owner compensates the owner. This is all reversed in the world of alarm industry contracts.

Your subscriber indemnifies the dealer; dealer indemnifies Central Station (and some dealer and manufacturer programs).

Indemnification exposes you to all of your business assets unless you are smart enough to have created a separate entity to conduct the alarm business (i.e. a corporation or LLC) and you follow the necessary corporate procedures to avoid piercing the corporate veil. If you continue to do business in your own name or under an assumed (unincorporated) name, you expose all of your assets.

Risk all your is really more than enough risk for most alarm owners. This is a risk that should not be taken when it comes to compensating the plant. Recognizing the risk involved in indemnifying Central Station (or the manufacturer), you should name Central Station as an additional insured on your errors and omissions insurance.

But this will only cover you to the extent of your insurance coverage. Unless you have limited your indemnity to insurance coverage, you will expose your business assets (and, if not incorporated, all of your assets) if the damage exceeds your insurance coverage.

What to do? You must limit your exposure to compensation to your insurance coverage. The Central Station Concession Agreement ( requires indemnity and does not limit such indemnity. You should have the Rider to Central Station Dealer Agreement. The endorsement will address about ten points, the issue of compensation being one of them, and probably the most important.

This is so important that if the central does not agree to limit your indemnity to insurance coverage, I think you should consider another central. Moan all you want to have to move accounts; you will scream (not moan) if you find yourself exposed to a central station error.

Why would a central agree to limit your indemnity? Two reasons are that competing Central Stations may agree to limit your indemnity, and the Central Station likely offers significantly more E&O coverage than you or most of its dealerships offer.

Most of the risks assumed by the central station will be due to its negligence, not to the dealers. Although the central station can be sued in any type of loss scenario, it is only really exposed if it received the signals and did not respond adequately to the signal. In this scenario, the central station would arguably have to bear its own responsibility for its negligence.

Also keep in mind that Central Station will likely have a lot more coverage than the average dealership and we certainly don’t want to have a situation where the Central Station E&O carrier decides to sue the dealership for compensation for reimbursement of their insurance payments.

Do not accept this risk; insist on the Rider to Central Station Dealer Agreement, at least on this issue.

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