In providing alarm monitoring services, it is important to understand the distinction between general liability coverage and errors and omissions coverage. One alarm company learned the hard way in a case before the Supreme Court of the State of Indiana.

The facts of the case indicated that a clerk in a liquor store was abducted by a robber, tied to a tree and beaten. At 3:00 a.m. the following morning, the store’s security service generated a report showing that the store’s night alarm had not been set at midnight as scheduled. The store’s general manager was called and arrived at the store at about 3:30 a.m. to find the money and the clerk missing. The clerk was located alive at 6:00 a.m., but he died of his injuries later that day.

The clerk’s estate brought a wrongful death action against the operator of the store’s security service, alleging that the alarm company breached a duty to notify the store’s manager within 30 minutes of closing if the night alarm had not been set, and that if the alarm company had acted promptly, the clerk would have been found earlier and survived. The case was dismissed, but upon appeal, the judgment was reversed and remanded for trial.

The case addressed the coverage of the estate’s claim under three insurance policies that the alarm company held at the time of the clerk’s death. Scottsdale Insurance Company had issued a commercial general liability policy that included errors and omissions coverage for “alarm installation and monitoring.” The alarm company’s second policy was a general liability policy with Cincinnati Insurance Company, and it was without an errors and omissions rider. In addition, there was also an umbrella or excess policy from Cincinnati that added a $2,000,000 limit above the “underlying policies.”

Scottsdale tendered its $1,000,000 policy limits, and the alarm company settled with the clerk’s estate by assigning its claims against Cincinnati to the estate. The estate, the alarm company and Scottsdale filed an action against Cincinnati. Cincinnati answered in a counter claim, stating that it owed no duty to defend or indemnify the alarm company against the wrongful death claim because the clerk did not die as a result of an “occurrence” covered by its general liability policy or umbrella policy. The estate and Scottsdale appealed and the court of appeals reversed the summary judgment in favor of Cincinnati and remanded the case to the trial court with instructions to enter summary judgment in favor of the estate and Scottsdale and ordered Cincinnati to indemnify the alarm company. The court of appeals reasoned that the alarm company’s failure to give prompt notice to the store manager was not intentional and therefore “an accident,” which, under the definition of the policy, became an insured “occurrence.”

The case was appealed to the supreme court that held that the alarm company’s failure was actually an “error or omission” and for that reason it was not an “occurrence” covered by Cincinnati’s commercial general liability and umbrella policies. The court therefore held that Cincinnati’s policies did not apply to this claim and the trial court’s decision was reversed and judgment was entered for Cincinnati.

Dealers should ensure, if they have general liability coverage, that the coverage also includes a rider for errors and omissions.