Contracts are our friend … wait … well-written contracts are our friend. In fact, they are imperative, but there is something else that is imperative that we don’t talk about often enough — standard operating procedures or SOPs. These two defense tools — contracts and SOPs — combined with your diligence act as a “belt and suspenders” when it comes to defending a claim.   

While the overall process of putting these together along with enforcing them can seem laborious, both items can make, or break, your defense.  

When establishing written contracts, consider the following types of clauses as well as obtaining legal advice from trust industry professionals. 

Indemnification Clauses. Used in contracts to shift exposure from one party to another, I break these down into two types: mutual and one-way. In a mutual indemnification, both parties agree to compensate the other party for losses arising out of the agreement when such losses are caused by the other, while a one-way indemnification clause can be in your favor or in the favor of the other party. In these instances, only one party provides indemnification.  

The indemnification clause is one of the primary areas of a contract that people will attempt to change. It is always ideal to have the indemnification clause be one way in your favor and have your worst-case scenario be a mutual indemnification. Make sure that you are extremely thorough when you first review and then finalize contract signatures — make sure changes have not been written in. 

Limitation of Liability Clauses. The intent is to limit the exposure you face in the event a claim is made against you. When enforceable, these cap your damages, although the amount is up to you as a business.  

Just remember, not all claims are covered by insurance so you could very well be looking at taking on that liability uninsured and that is something to consider when evaluating what amount you put in your contracts. This is also another section of your contract to watch out for when people send you back a contract for your countersignature. Make sure it hasn’t been changed. 

Get an Expert’s Opinion and Help. Always get legal advice as it relates to contracts. I have found the best expert in the alarm industry for contracts is Ken Kirschenbaum who has represented the industry since 1977. Not only can he provide advice, but he has standardized contracts that have been tailored to the alarm industry and the specific scenarios that may be unique to your business model. His standardized contract forms are used by thousands of alarm companies in the United States and internationally. Reach out to Ken at (516) 747-6700. 

Establish SOPs to accompany contracts with these four action steps: 

1. Write. While written procedures certainly aren’t a replacement for training, they are required to ensure consistency in your overall operations. Procedures provide clarity to the employee when dealing with critical work. Clearly written policies and procedures can also provide legal protection so your written procedures should be clear, concise and informative, and include warnings and cautions. 

2. Test. Before employing a procedure, it should be tested by those who did not draft it.  This testing allows for discovery of not only defects, but alternatives that may need to be used in varying situations. Testing of procedures should be ongoing. 

3. Review. Procedures should be reviewed consistently and be kept up to date. Every time a scenario comes up that is not identified in the procedures, it should be added. Also, review employees’ utilization of each procedure.  

4. Reinforce. Reinforcement of your SOPs could mean the difference between having liability and not having liability when a claim comes. You need to set up a process that helps ensure your employees are following the procedures you have laid out. 

Real-Life Belt and Suspenders 

A wrongful death claim is the number one claim that will worry underwriters like myself. Our immediate reaction is: “This will be a policy limits loss.”   

Any loss of life is a sensitive subject and certainly a tragic loss, but the horrific idea of someone losing their life does not necessarily have to equate to liability for your business. For example, we had a client who had an emergency alarm come in. Procedures were followed “to a t,” with emergency services being dispatched immediately. Unfortunately, the person on the other end of the call did not survive. Did our client have liability? No. As much as we push on contracts, it had very little to do with their contract and everything to do with their procedures. They stuck to what they were supposed to do; operated the way they were supposed to; and their records showed that. Add in the contract and we are talking belt and suspenders here.   

Every business will be unique in their needs for procedures and contracts, but there is significant value in protecting themselves regardless of insurance being in place. If you aren’t already a member of the ESA, please know that there are significant resources for these items available to you. Reminder – if you are a member, your premium savings COMPLETELY COVERS the cost of your membership. Call Rhett Butler at 866-315-3838 for more information on the Security America Insurance Programs, and to get a free, no-obligation quote.   

Also, don’t forget to reach out to Sophia Dominguez, membership development manager at ESA, to learn more about how you can get a member discount, too, at 972-807-6800.