Why Should Alarm Systems Set Off an Alarm? [Rural Telecommunications]
(Rural Telecommunications Via Acquire Media NewsEdge) Due diligence is more Dhan a prudent practice when analyzing and planning whether do enter into a new service offering.
Your customers want more and more from you. Does that sound familiar? As daunting as the thought of entering into new areas of service may be to deal with, the good news is that you are not alone when it comes to feelings of being overwhelmed or getting requests from customers for more.
The biggest question facing all business owners and managers is, What more can we offer? Due diligence is more than a prudent practice when analyzing and planning whether to enter into a new activity as a service offering. In some regard, it is a requirement of your direct and indirect management team. Direct means your staff holds responsibility for management and decision making, and indirect includes any third-party professionals that support your business with operations. These third parties include attorneys, accountants, investment advisers, and hopefully your insurance provider. All of these service providers can play a key role in offering advice that forms the basis of your decision to begin offering or forget about entering into a new product or service offering.
Recently our company has fielded a number of inquiries about the risk of providing alarm services. These include standard premise and person security systems, as well as programs that notify the customer by text or email of a malfunction of a system at their property and medical alert systems that tell the user to take medicine. But what is the risk and insurability of these systems?
Insurance risks other than the liability are associated with offering alarm services, like the loss of property. But they pale in potential severity when compared with the potential of a third party suffering bodily injury, property damage or financial loss connected to a company's alarm service. For that reason, this article focuses on the general liability and professional liability exposures, and on how these can be a major issue.
The following will give coverage overviews and examples of activities that fall under the commercial general liability policy (CGL) and a miscellaneous professional liability policy (MPL) and also a design and build policy (DBP) for you to get a feel for the coverage of risk.
The CGL policy covers premises and products or completed operations of the insured. It covers them in very basic terms. A third party makes a claim of bodily injury, property damage, personal injury or advertising injury. The first two are the most worrisome in the event that an alarm service fails and would also be the most costly in the event that bodily injury leads to one or more fatalities and property damage to complete destruction of a building and its contents. The policy is meant to cover events that involve bodily injury, property damage, personal injury and advertising injury that happen because of the named insured's actions or their responsibilities. So an unendorsed base CGL will provide protection, but it is rare to almost impossible to find one that will not be endorsed to limit or exclude some of the alarm activity of the insured. Generally the installation, a connection of telecommunication wire to an alarm system, is included by insurers in the CGL with a premium charge. The theory is that failure of the system will not be due to the connection of the telecommunications wiring but probably more from failure of the equipment. The monitoring, which is often performed by a third party for the telecommunications provider, is one of the places where you will commonly see an exclusion. The problem that the insurers often feel is unacceptable is that the third-party monitoring firm, through the contract it signs with the telecommuni- cations company, passes all liability for monitoring to the telecommunications company although it is not actually monitoring the properties.
A couple of activities that could fall into the CGL could be considered professional exposure. These include consulting and the engineering of the security system. The first would be consulting from an employee who has credentials, a degree or some knowledge above and beyond that of a layperson with regard to security systems. Most businesses want their employees to offer advice on the products or services they offer, but the line of what is general exposure or professional is drawn when knowledge and education plus a fee or charge come into the equation. When the risk is a credentialed employee offering consulting for a fee, there is a risk of loss that is from an error or omission in his or her work.
Coverage for an error or omission is the base protection of the MPL and DBP Unfortunately, defining the risk isn't all that easy. The activity of consulting has many shades of gray, and the CGL or an MPL could be the appropriate policy to respond. That is why there is overlap.
The other professional liability exposure, which is often an extension of the general consulting, involves a situation where the specifications of the manufacturer of the system are ignored and advice is given to bypass them, which, in liability terms, now makes the business the engineer of the system and subject to what is known as design and build liability. Of all of the risks, this is the easiest to risk manage by using the basic avoidance technique. Never override the specification. Never. Policies are available for this if management won't work.
This risk associated with entering a new business activity is great, but it can be even greater if you do not involve all of your direct and indirect management teams in the process of vetting the activity. Alarms, installation, consulting, design or monitoring each come with a risk and solution.
Peter J. Elliott, CPCU. is president and chief executive officer of 7ekom Insurance Group. He can be reached at PJE(5 tekominsgrp.com
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