Blog Question on the need for Professional Indemnity Insurance
We have a client whose activities include, Alarm installation (no consulting, manufacturing or importing alarms).
Where does the client stand legally if they are not charging a fee for advice or recommendations and there are no reports issued? Would you still recommend a PI policy?
I had a look at LMI’s Risk Coach, which says the exposure is significant when they are involved in design, my assumption would be that anytime they are installing an alarm; there is a design component when it comes to the placement of the sensors etc. Is that correct?
As an example if the client made an error with respect to the placement of a motion sensor and a burglar was able to enter the premises without triggering the alarm which resulted in damage to or loss of property could you rely on a liability policy to cover this?
Are there other exposures that require a PI policy, when there is no fee for charged for advice?
Zoe [surname and email provided
My reply was as follows:
I can understand you being perplexed. I am too.
Traditionally, where there was advice with a product and/or advice where there was no fee charged, then a Combined General Liability (“CGL”) policy would be sufficient. This seems to be changing and, quite often, lawyers and claims officers seem to be taking a different approach than the underwriters and clients and brokers can be caught out.
As explained in RiskCoach, the usual questions in a ‘fact finder’ come needs analysis would be as set out below.
There are, of course, the usual steps to take as follows:
- Ascertain exactly what they do?
- Do they prepare a specification and quote?
- Ascertain how they bill out the charges for their services and how do they describe their services. (Is the word design anywhere?)
- Do they have a contract and what does that say about liability?
- Is the contract signed by both parties?
- What does the contract say about insurance?
From your question, you seem to have covered most of this.
It seems quite clear that an alarm installer would need to prepare a plan or a design to install a system and this is the same as an electrician doing wiring. The electrician’s work may need to be signed off by another party, in many cases, an electrical engineer if it is a business premises.
In this case, the Liability policy will cover Personal Injury, property damage and advertising liability if the insurer agrees that the work does not require professional qualifications. However, I can imagine that there is a strong possibility of financial loss claims, if the system should go down for whatever reason and whilst there might not be a major issue in relation to what is, say, property damage that is claimable under a CGL policy, one has to be concerned that there could be claims for financial loss outside of that covered by a CGL Policy. This could be where they suffer financial loss because a customer moves his property away from a premises, because the system is not seen as capable of providing the appropriate degree of protection.
There is also the possibility, if they are operating a central watching service, that claims arising from the quality (or lack of) of the service mat ensue. as an ethical issue. Having said this, they may be protected somewhat via contract and a disclaimer clause, but they, by their very nature, do have their limitations.
It might be one of those cases where you need to use a QBE Purpl policy, or something similar to read through and discuss with Insurers to get there assessment as to what covers are needed. My understanding is that QBE tend to not make Purpl available for what they class as high risk activities and this might be in that category. You would need to check with them.
CGU have something similar. Here is a link to a brochure on the CGU product. There are others out there as well, but these are the first two that come to mind. I would suggest you check LMI PolicyComparison for details of the coverage afforded by such products.
I think that a discussion with Jun Acance from CGU (I have always found Jun to be most helpful), or someone of equal standing as an underwriter could be useful, because there is also the nasty and conventional PI issue where the manufacturing exclusion could get in the way and the PI insurer argues it is a products liability matter.
The best answer is, if in doubt, have the client set up a design department as a separate legal entity and arrange PI for the design company. They might never have a claim, but this would allow them to sleep at night. This is a good risk management strategy for a large company, but not necessarily an inexpensive solution for a small entity.
I hope this helps, but it is a very difficult question.