If an alarm contractor violates a statutory duty, can they still utilize the legal protections in their installation and monitoring contract to help minimize their liability?
As I understand it from legal counsel, it depends on the fact pattern, how the contract was drafted and the jurisdiction where the loss occurred. Given that, if the alleged violation is a fire code, such as NFPA 72, the National Fire Alarm and Signaling Code, the contract is not likely to be enforceable especially if someone is seriously injured and/or killed.
Against the foregoing backdrop, in this case study, a homeowner is seriously injured in a fire and alleges that their alarm contractor failed to professionally design, install, inspect, test and maintain the household fire alarm system in their premises.
The lawsuit claims that, among other things, the alarm contractor failed to comply with the mandatory minimum requirements of NFPA 72, and that, but for the alarm contractor’s failure to comply with its statutory duties, the fire would have been detected much earlier, giving the plaintiff much more time to escape, before the premises became untenable.
Here, the plaintiff’s claim is that the fire alarm system provided a dangerous delay before it finally activated. Notwithstanding the foregoing, among the claims presented in the lawsuit are that the plaintiff suffered significant property damage, serious personal injuries, mental anguish and emotional distress.
After receiving the lawsuit, the alarm contractor immediately and dutifully notified his insurance agent and then received a letter from his carrier advising that the claims relating to “mental anguish and/or severe emotional distress” are not covered under his company’s policy of errors and omissions insurance.
Does Your Errors and Omissions Policy Cover Mental Anguish and Emotional Distress?
Simplified, many insurance policies often classify mental anguish and emotional distress separately from direct financial or physical harm and fall outside the typical scope of “damages” covered by standard business liability or E&O policies.
In other words, under this policy of insurance the alarm contractor is not covered and will have to retain his own legal counsel for the mental anguish and/or emotional distress claims and is financially responsible for all damages which he legally becomes obligated to pay, either by way of a judgement or settlement of the claim, which as I am sure you can imagine are likely to be significant.
So, what did the alarm contractor do wrong in the policy of insurance that he selected? First, the alarm contractor needed to ensure that he was working with an insurance agent who specialized in providing insurance to the alarm industry and to perform his own due diligence.
In tandem, the alarm contractor needed to couple what he/she learned with the sagacity of the insurance agent in making sure that he had the broadest coverage available for foreseeable types of claims that his company could face and be subjected to, including but not limited to property damage, serious personal injury, mental anguish, emotional distress and/or death.
On the other hand, what if the alarm contractor claims that he did not read the policy and/or that his insurance agent did not tell him about these limitations?
As I understand it, if these positions are taken by the insured, which is by no means novel, they generally are going to fail and will not override the insured’s duty to read their policy of insurance, nor does it equate to being sufficient enough to make a claim that an insured could prevail on.
How to Cover Yourself and Your Company
Coming full circle, there are errors and omissions policies that do cover mental anguish and/or emotional distress but the alarm contractor and/or agent has to search out these policies and make sure that his/her company has as much insurance as they can afford, because being “covered,” but not having sufficient insurance is also disastrous.
To further amplify the criticality of buying more than a sufficient amount of insurance to help protect your business, think about some of the homes that you have electronically protected and then visualize what it would be like if a fire destroyed the home and then g-d forbid what would happen if someone was seriously injured and/or killed and then your company was sued.
Certainly, a claim such as this could easily expose your company to risk that well exceeds the amount of insurance that you have. Conversely, what happens if there is a loss on a commercial account?
Invariably, alarm contractors must stay vigilant in the way in which they design, recommend, install, program, inspect, test, maintain and monitor each of their subscribers’ security systems and recognize the risks that they face before a loss occurs.
These risks must be intensively and regularly focused on from a legal, insurance and alarm contractor perspectives, with the help of professionals and/or subject matter experts from these respective disciplines. Given that, changes that are needed must be analyzed, addressed and implemented if applicable, because the best time to help limit your liability and risk is before a loss.
