Paul Young, Underwriting Manager at EC Insurance Company Limited (ECIC), explains the ins and outs of efficacy cover for electrical contractors working in security and fire alarm installations.
Work in the electrical contracting industry can cover a wide range of services, and most contractors in the field will engage in some level of activity that may leave them liable if one of the products or services they provide causes injury or property damage to a third party. Electricians know they must have Public and Products Liability Insurance cover to protect themselves from these type of exposures, but what about efficacy cover and where does it fit?
The common definition of efficacy cover is insurance against the legal liability for injury to third parties or damage to third party property arising from a product or service failing to perform its intended function. Sometimes it’s referred to as ‘inefficacy cover’ or ‘failure to perform cover’. It is essential for contractors undertaking performance critical activity or areas such as fitting fire and security systems, control panels or computer suites.
A common misconception is that the cover needs to be in place in case the product itself, like a security alarm, fails completely. But what if the product is working well but does not perform as intended? A good example here is a fire alarm. In the event of a fire there are several scenarios that could come into play. The alarm may not operate due to it not being installed correctly or alternatively it may have been fitted to the correct specifications but not monitored.
A real life example here is the 2008 fire that spread its way through the pier at Weston-Super-Mare causing damage throughout and virtually destroying the whole structure. It was later established that due to a failure in the monitoring of the fire alarm system, the fire service was not alerted until around five hours after the fire was first detected. Efficacy cover is the only way to protect against the additional damage or injury that would have occurred in this example – if the performance critical system was not operating correctly. Given the extreme nature of this case hopefully efficacy cover was in place!
Not all insurers offer efficacy cover – in fact it’s commonly excluded in respect of products or services relating to fire and security protection, performance critical functions or in hazardous areas. In addition, the policy documents are often long and complex so it can sometimes be tricky to know if efficacy cover has been excluded in its entirety or partially.
“Not all insurers offer efficacy cover – in fact it’s commonly excluded in respect of products or services relating to fire and security protection, performance critical functions or in hazardous areas.”
Some electricians will purchase Professional Indemnity Insurance to protect themselves from liability arising out of design and professional duties, but these will often exclude efficacy cover.
It is therefore crucial for electricians and installers to speak with either their insurer or broker to check that they are 100% covered for the type of jobs that they carry out and that they are adequately protected. This will be based on the contractor providing a true and fair representation of the activity that they undertake. It is also important to consider the level of indemnity provided by efficacy cover; limits of £2m, £5m and greater are generally seen as an industry standard.
It’s also important to recognise that electricians will often take on specialist contractors to undertake performance critical activity, such as fire and security, on their behalf. The subcontractor must prove that they have the correct level of cover in place to ensure they are adequately protected in the event of a loss. The main contractor is often seen as the sole body responsible for the job – including if things go wrong, so it’s vital they have proof of efficacy cover in place.
Appropriate insurance and efficacy cover has a positive impact on the electrical industry as a whole, from individual contractors to the end customer. It allows electricians to carry out their daily activities with confidence that they are protected against all eventualities. Efficacy cover is available from specialist insurance providers such as ECIC, so electricians should speak to their insurer or broker to ensure they have the correct protection.