Skip to Main Content

Be Aware of How Little Risk Your Service Providers Are Taking

On Fire – Alarm and Fire Suppression Contracts

Thursday, August 1, 2024
Melanie Fitzgibbons
On Fire – Alarm and Fire Suppression Contracts
Print

You’ve purchased fire alarms for your facility…a fire starts late on a Friday night, the alarms don’t sound and the building burns to the ground. It would seem only right for the alarm company to foot some, if not all of the bill for the fire, right? Unfortunately, that’s likely not how your contracts are written with your service providers. Most contracts that we’ve reviewed from either fire suppression or fire/burglar alarm providers, take on either no liability or extremely little (annual fees paid).

While we believe sprinklers and alarms are a great best practice, it’s important to know the risk and your obligations surrounding them. We’ll walk through the benefits of these systems, the key areas of the contracts that are likely not in your favor and how you can reduce the risk of a bad situation.

The use of a commercial security system offers important benefits to businesses, such as:

  • Enhanced Security
    • A commercial security system provides protection against theft of assets, vandalism, and unauthorized access to premises. This can include alarms, surveillance cameras, and access control systems that deter potential criminals and help law enforcement respond.
  • 24/7 Monitoring
    • Many commercial security systems offer around-the-clock monitoring services. This means that if an alarm is triggered, a monitoring center can immediately alert authorities.
  • Employee Safety
    • A secure workplace helps protect employees from potential threats, creating a safer and more productive environment.
  • Integration with Other Systems
    • Security systems can be integrated with other building management systems, such as lighting and HVAC controls. This integration can improve energy efficiency and overall management of the property.

Investing in a commercial security system is an important consideration for businesses looking to protect their assets, employees, and operations from potential threats and risks. However, the Terms and Conditions of a commercial security system are often fraught with complicated legal provisions that benefit the security system provider and can leave the business bearing liabilities.

Limitation of Liability

One such provision is a limitation of liability. A limitation of liability is a legal provision often included in contracts to restrict the amount and types of damages that one party can recover from the other in case of a breach of contract, negligence, or other specified circumstances. It sets a cap on the total liability that can be imposed on a party, typically to a specific amount or to certain categories of damages.

Security system providers typically use a restrictive limitation of liability that eliminates any and all potential liability they may have to their customer which arise from their customer’s use of the system. Effectively, it relieves the provider from paying any damages or expenses to the customer that may have resulted from the operation or failure of the security system.

Indemnification / Hold Harmless

Similarly, security system providers do not indemnify or hold harmless businesses for claims, lawsuits, and other expenses arising from an “Alarm Event.”  An Alarm Event is typically defined as any loss or damage arising from or related to a casualty occurring at the customer’s premises during which the security system operated, operated improperly, failed to operate, or otherwise did not detect, prevent, terminate, warn of, or mitigate losses or damages resulting from the casualty. Therefore, the responsibility to compensate a third party or the business for losses or damage that were caused by the provider’s negligence would be retained by the business.

The reason for this is it prevents security system companies from exposure to a large number of sizable liabilities such as settlements associated with fire damage, burglaries, and assaults on employees working at the protected premises.

The impact of these legal provisions on the customer can be significant. The limitation of liability prevents a business from filing suit against the security system provider to recoup losses incurred due to the failure of a security system, such as the failure to detect a fire that caused damage to the business’s premises. The lack of indemnity prevents the customer from relying on the provider to pay its share of a settlement of a third-party claim against the business, even when the security system provider’s negligence contributed to the claim.

The best way to avoid such liabilities is to keep the security system working in optimal condition. The following are best practices to keep in mind:

  • Follow the recommendations of your service providers (fire suppression, alarm and insurance companies).
  • Instruct all users on proper use of the system.
  • Test the system monthly and send test reports to the security system provider.
  • Ensure that HVAC and other building systems do not interfere with alarm detection service.
  • Notify the security system provider promptly upon discovering a defect in the system.
  • Pay all fees associated with usage of the security system.
  • Supply and maintain all equipment and facilities necessary for installation or operation of the system.
  • Limit security system access only to necessary employees.

Insurance Coverage

Being properly insured can help a business reduce out-of-pocket expenses when a loss is caused by the failure of a security system. Appropriate insurance to carry includes the following:

  • Commercial Property Insurance
    • an insurance policy for businesses that insures against damage to their buildings and contents due to a covered cause of loss, such as a fire.
  • Business Interruption Coverage
    • a commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations.
  • Commercial General Liability
    • a standard insurance policy issued to businesses to protect against a wide range of liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability.
  • Umbrella/Excess Liability
    • a policy designed to provide protection against catastrophic losses and is written over primary liability policies, such as commercial general liability.

Protective Safeguards Endorsements

It is important to take into account that some insurers routinely attach a protective safeguards endorsement to commercial property insurance policies. This endorsement makes it a condition of coverage that the protective safeguards cited in the endorsement, such as an automatic sprinkler system or a security service, be in operation at all times except when the insurer has been notified of the impairment in protection. Failure to maintain the protective safeguards in good working order, or failure to notify the insurer of a temporary impairment in the protection, or comply with conditions of the endorsement may suspend coverage until the protection is restored or eliminate coverage for loss by fire.

Because a protective safeguards endorsement can effectively eliminate coverage, businesses are advised to resist the attachment of such an endorsement to a property insurance policy whenever possible. If there is no alternative but to accept the endorsement, care should be taken to notify the insurer when there is even a slight impairment in protection. Businesses should also confirm that this endorsement is not attached to a property insurance policy unless the specified protective safeguard is in place and in operation at the insured premises.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.