If you are thinking about becoming a Certified Dealer for a security alarm system manufacturer or service provider (e.g., Honeywell or Alarm.com), there are several important things you should know that may affect your business and your own contracts with your customers.    

Big name component and service providers have provisions in their Dealer Agreements to protect them and keep them out of lawsuits.

Here are some of the key provisions:

1. Insurance Requirements. The dealer agreement may require that the dealer maintain minimum amounts in insurance coverage, inuring to the company’s benefit for indemnity obligations, and naming the company as an additional insured.

For example, Honeywell’s agreement states “Dealer shall at all times maintain Commercial General Liability Insurance for bodily injury and property damage, including loss of use thereof, in the minimum amount of $1,000,000 per occurrence, including coverage for products liability and completed operations, and Errors and Omissions liability insurance in the minimum amount of $1,000,000 per occurrence. The proceeds of such insurance shall inure to the benefit of Honeywell to the extent of Dealer’s indemnification obligations hereunder and shall be applied to such indemnification obligations of the Dealer as provided in this Agreement. Dealer shall include Honeywell as an additional insured on the insurance policies required…”

2. Indemnity Obligations. The Dealer Agreement may requires that you indemnify the company for all losses from Dealer’s actions or from product failure to detect or warn.

For example, Honeywell’s agreement requires: “Dealer shall indemnify, defend and hold Honeywell harmless from and against any loss, claim, suit, action, proceeding, liability, damage or expense (including reasonable legal expenses and costs) which Honeywell or any of the foregoing dealers may suffer, sustain or become subject to, (i) as a result of any alleged act, omission or obligation of or by Dealer or Dealer’s agents arising out of (A) the sale, installation, maintenance and/or monitoring of Products by Dealer, (B) Dealer’s operation of its business or Dealer’s violation of any law, rule or regulation, or (C) any alleged breach by Dealer of any of the terms, conditions or provisions of this Agreement or (ii) arising out of claims, suits, actions or proceedings by Dealer’s customers based on failure of the Products to detect and/or warn of the dangers for which the Products were designed (collectively “Indemnifiable Matters”). Dealer shall reimburse any entity or person entitled to be indemnified hereunder for all expenses (including reasonable legal expenses and costs) as they are incurred in connection with investigating, defending or settling any such claim, suit, action or proceeding, whether or not in connection with pending or threatened litigation in which the entity is a party.”

3. Protecting Honeywell in your Contract. The Dealer Agreement may requires that your contract with your customer provide the company with the same protections you have.   Again, using Honeywell as an example:  “If Dealer limits, excludes or disclaims its potential liability to its customers or anyone else with whom it does business in any written documentation relating to the sale, installation, servicing and/or monitoring of security systems utilizing the Products, Dealer shall also limit, exclude or disclaim the potential liability of Honeywell to such Dealer’s customers or other such persons in substantially identical language and to at least the same extent as its own liability has been limited, excluded or disclaimed. ”

You should notify your insurer of these requirements. It is likely that you should also modify your contract.

Many contracts contain language that says the contract provisions inure to the benefit of and are applicable to any assignee, subcontractors, and central monitoring stations of the alarm company. This is not sufficient to protect the company as required in the dealer agreement. The best course of action is to add the company’s name specifically to that “applicable to” list, or at the very least add “component manufacturers” and “all service providers,” which would encompass the company.

Even for those that are not Honeywell dealers, it behooves you to pay attention to the requirements of your component and service providers. Alarm.com, for one, has terms that you are required to give to your Alarm.com customers, either as part of your contract or an addendum to it. Your central station also likely has terms for its protection that you are required to include in your customer contract.