I have re-examined the service.cfg:
name generic-service ; The 'name' of this service template, referenced in other service definitions
active_checks_enabled 1 ; Active service checks are enabled
passive_checks_enabled 1 ; Passive service checks are enabled/accepted
parallelize_check 1 ; Active service checks should be parallelized (disabling this can lead to major performance problems)
obsess_over_service 1 ; We should obsess over this service (if necessary)
check_freshness 0 ; Default is to NOT check service 'freshness'
notifications_enabled 1 ; Service notifications are enabled
event_handler_enabled 1 ; Service event handler is enabled
flap_detection_enabled 1 ; Flap detection is enabled
process_perf_data 1 ; Process performance data
retain_status_information 1 ; Retain status information across program restarts
retain_nonstatus_information 1 ; Retain non-status information across program restarts
register 0 ; DONT REGISTER THIS DEFINITION - ITS NOT A REAL SERVICE, JUST A TEMPLATE!
As shown, I have removed the contact_groups for the services. This has stopped notifications going out. I a going to test and see if it will send email properly when the host is set to email.