March 26, 2011
******************
***********
Note: Bart is responding to a question / statement asking why insurance is needed if the contract limits liability to $250
**********
Ken
The $250 limitation may not apply in all cases. It certainly doesn't apply to legal costs incurred in defending claims. Much of what Security America RRG pays on claims is defense expenses. Other expenses such as investigative expenses, medical expenses, etc, may not be limited by the $250.
For instance, take a recent situation where a Security America insured was brought in as a subcontractor on a construction defect claim with a homebuilder. The homebuilder brought in all their subcontractors to the claim, even though the security system was not even remotely related to the loss. We incurred defense costs of over $10,000 just to get released from the lawsuit. The $250 contractual limitation did nothing to help in this case.
Typically the hold harmless clause in the contract requires defense expenses to be provided to multiple parties, and the hold harmless doesn't apply to all allegations such as gross negligence, intentional and willful or fraud.
Pricing of insurance is directly correlated to the loss and loss adjustment expense incurred and the industry in general has not fared well in insuring alarm and security related businesses resulting in a rather limited market of changing insurers and vacillating prices - at least until Security America RRG came onto the scene and provided some stability.
Bart A. Didden
Executive Claims Manager
Security America Risk Retention Group – SARRG
************
Response
************
The cost of defending a claim or lawsuit can be expensive, and your alarm contract with a limitation of liability may not get enforced, if at all, until you have spent a good deal of money defending the claim. E&O insurance covers the defense cost, and the insurance is will worth its cost for the peace of mind it offers.
There are plenty of cases where payment is made to resolve a claim or lawsuit, and often well beyond the limitation of liability amount. The reason for this is that sometimes it's cost effective to just settle, and other times there is real risk of the contract's protective provisions not be enforced for one reason or another. Unless you're faced with the additional problem of your insurance carrier disclaiming coverage, you'll be happy to have the insurance.