It is every owner’s nightmare — walking into the office to find out that one of your subscribers suffered a catastrophic loss the night before. You can barely think given all of the questions running through your head: What if the subscriber (or their insurer) points the finger at you? What if they sue? Who should you call? What should you say and, more importantly, what shouldn’t you say?
There are right and very wrong ways to handle subscriber claims that could result in a lawsuit. Here are the six critical steps to protect you if you end up in the danger zone. Some you should take immediately — before disaster strikes; others are some are the first steps you should take if that fateful day arrives.
1. Maintain written subscriber agreements that limit your liability.
Risk allocation clauses in well-written subscriber agreements are generally enforceable and are the first line of defense against claims by subscribers and their insurers. Insurers attempt to assert claims against parties who contributed to an insured’s losses through a doctrine called subrogation, which essentially gives insurers the right to “stand in the shoes” of their insured; thus permitting the insurer to pursue claims against third parties they believe may have caused all or a portion of a loss, once the insurer has paid the claim. Subrogation has become a sophisticated industry, and insurers and their investigators pore through rubble and records looking to recover from potentially culpable actors, including electronic security providers. Faced with a well-written subscriber agreement, however, subrogation lawyers often look for recovery elsewhere.
Another critical reason to have valid subscriber agreements in place before a loss is that many industry insurers require the insured to have a liquidated damages or limitation of liability clause in force as a condition of coverage. No provision may mean no insurance — leaving you to pay always-substantial defense costs, and to fund any settlement or judgment.
2. Maintain appropriate insurance.
Before you are faced with a claim, make sure you have adequate insurance to protect your company. Without it, a single subscriber claim could mean the end of your business. At a minimum, you need commercial general liability, errors and omissions, and automotive liability coverage. You should also want incidental contracts coverage, which usually provides coverage if you are contractually obligated to indemnify a service provider such as a third-party monitoring facility.
How much and what kind of insurance do you really need? There’s no rule of thumb — the best way to be sure is to consult with an experienced industry insurance agent. One issue you and your agent should consider: What would it cost to replace any of the premises you service? That answer differs based on your clients — do you provide service for sprawling multi-million dollar commercial facilities or detached single family homes? How many people inhabit or work at the premises? Where are the premises located? The cost to replace property in Philadelphia, Pa., likely differs from the cost to replace property in Philadelphia, Miss.
3. Promptly notify your insurer of claims and cooperate in their efforts to protect you.
If that terrible day ever comes that one of your subscribers suffers a loss, you should be breathing a little easier — provided you followed steps 1 and 2. Don’t drop the ball now! The insured (that’s you) is obligated to notify their insurers promptly when they receive a claim — or when they have reasonable notice that a claim may be filed. Make sure you follow this rule, otherwise your insurer may be able to disclaim coverage. The insurer will appoint a claims representative who should assist you in dealing with potential plaintiffs; and it will also likely appoint counsel to protect your interests if necessary.