by Lessing E. Gold, Contributing Legal Columnist Security& the Law


Fire Sparks Closer Look at Indemnity


A recent case before the United States Court of Appeals for the Eighth Circuit centered on a disclaimer of liability provi- sion contained in an agreement between an insurance company and an inspection company. The plaintiff insurance com- pany agent hired the defendant inspection company to inspect a hotel the insur- ance company was preparing to insure. Following the inspection, the insurance company continued its coverage of the hotel. The inspection company’s default inspection report template contained a disclaimer of liability provision. Later, when a fire occurred at the hotel, the plaintiff hired a fire protection specialist who made an inspection and reported several inadequacies with the hotel’s fire protection system, but acknowledged that he had no way of knowing if these inad- equacies existed prior to the fire. Based on the findings, the insurance company refused the hotel’s claim for damages but subsequently settled the mat- ter for $3.25 million. The insurance com- pany then brought this action against the defendant seeking reimbursement for the $3.25 million, alleging that it would not have issued the policy if defendant had correctly informed plaintiffs of the inad- equacies in the fire protection systems. The United States District Court in Missouri granted summary judgment in favor of the inspection company on the insurer’s claims and its counterclaims, and awarded damages, attorney fees and costs. The insurance company appealed to the United States Court of Appeals. In the case at hand, the insurance com-


pany’s agent retained the defendant to inspect the property. The inspection com- pany showed the agent its default inspec- tion report template. At the bottom of the template was a disclaimer of liability


46 November 2010


provision that the inspection company included on all inspection reports. The provision stated, among other things that, “The company does not assume any legal liability arising from any inaccuracies found to be contained within this report. Furthermore, the requesting company, their representatives and reinsurers hold the company harmless from any claims or liabilities arising out of any decisions or actions made based on information developed in this report.” The insurance company’s agent never requested removal of the provision. In fact, the agent’s employee wrote, “Okay” next to the provision. The insur- ance company had a final recommenda- tion check made and confirmed that the hotel had complied with all of the rec- ommendations. The insurance company, pursuant to this finding, continued its coverage of the hotel. The U.S. Court of Appeals pointed out that contractual provisions releasing the party from liability for its own negligent acts must be stated clearly, unequivo- cally and conspicuously. The court fur- ther pointed out that under Missouri law, they have recognized an exception to this requirement, distinguishing, “between contracts with consumers and contracts between businesses with equal power and sophistication.” Sophisticated business parties require less precision in the terms of the indemnity clause, and it is irrelevant whether the businesses bargained for the provision. The court pointed out that there is nothing ambiguous about a requirement that one party indemnify the other for any and all claims in a commercial contract. The court ruled that defendant’s indem- nity provisions contained in the agree- ment were enforceable and relieved defendant from any liability, affirming


READERS ASK Q


Yes. Under the terms of your contract, you are installing, servicing and monitoring your cus- tomer’s alarm system and provid- ing a service.


A


Errors and omissions coverage is exactly what it states: if you or any of your employees or subcontractors is negligent or fails to provide the service contracted for, you may be liable for any damages sustained by your customer. This is probably not covered by your general liabil- ity policy, but by a separate errors and omissions policy. Make sure you understand your coverage. As a matter of fact, today, if you are providing service over the Internet (electronic data) you probably want to make sure that you have cyber liability coverage (see Business Services pg. 156 for more on cyber insurance). Your alarm system may protect the premises from loss by burglary or fire, but information you make available on the Internet could lead to identity theft or other cyber liability. Talk to your broker and make sure you are covered.


Les Gold addresses readers’ questions online at www.sdmmag.com/law.


the ruling of the lower court and grant- ing the defendant’s motion for summary judgment against the insurance company.


I have a small alarm com- pany. We contract out our monitoring to a third party moni- toring service. When discussing insurance for my company, my broker advised that my general liability insurance coverage is not sufficient, and that I must have errors and omissions coverage. Is this correct?


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