Alarm company’s actions not covered by policies

The Indiana Supreme Court reversed the denial of summary judgment on an insurance company's coverage defenses, ruling its insured's actions leading to a lawsuit were "errors or omissions," and so weren't covered by the commercial general liability or umbrella policies.

In Tri-Etch, Inc., d/b/a Sonitrol Security Systems of Muncie, et al. v. Cincinnati Insurance Co.,  No. 49S02-0901-CV-8, the justices unanimously held that alarm company Tri-Etch's CGL and umbrella insurance policies don't cover a wrongful death claim against Tri-Etch for delays in observing or reacting to the failure of a liquor store to make a scheduled setting of a night alarm. In 1997, Muncie liquor store clerk Michael Young was abducted and beaten just before the store's midnight closing, so the scheduled midnight alarm wasn't activated. It wasn't until 3 a.m. that Tri-Etch discovered the alarm hadn't been set. Young was found later that morning and died of his injuries.

Young's estate won a $2.5 million jury verdict against Tri-Etch in December 2004. The company had three insurance policies; at issue in this appeal is whether Cincinnati's CGL and umbrella policies cover the claim against Tri-Etch. Also disputed is whether Tri-Etch gave Cincinnati timely notice of the wrongful death claim.

In a dispute between Cincinnati, the estate, and the other insurers, the trial court ruled the estate's claim against Tri-Etch was covered by Cincinnati and ruled Tri-Etch's notice to Cincinnati was unreasonably late and no coverage under the CGL or umbrella policies was owed. The Indiana Court of Appeals reversed.

Cincinnati's CGL and umbrella policies both insure against liability for "bodily injury" caused by an "occurrence." The parties disputed whether Young's death was considered an accident, which would be covered as an occurrence, but the justices concluded Tri-Etch's unintentional oversight to call about the alarm around 12:30 a.m. was an error or omission, so it's not an occurrence covered by the CGL or umbrella policies, wrote Justice Theodore Boehm.

The umbrella policy also specifically excludes bodily injury "arising out of any act, error or omission of the insured in rendering or failing to render telephone answering, alarm monitoring or similar services."

"The jury's verdict necessarily established that Tri-Etch's failure breached its contractual obligation to the store or fell below the standard of care of a reasonable alarm company," wrote the justice. "The judgment therefore was for liability squarely within the exclusions of the umbrella policy."

In determining whether Cincinnati received late notice and was prejudiced by it, the Supreme Court looked to Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984). The high court disagreed with the ruling of the Court of Appeals using Miller, believing that an insurer's denial of coverage on other grounds as a matter of law doesn't rebut the presumption of prejudice from late notice.

"Even if an insurer consistently denies coverage, timely notice gives the insurer an opportunity to investigate while evidence is fresh, evaluate the claim, and participate in early settlement. The fact that an insurer asserts other coverage defenses does not render these opportunities meaningless," he wrote.

Because the high court determined Cincinnati's polices don't apply to the claim in this case, it didn't consider whether Tri-Etch's notice was late or if so, whether the late notice prejudiced Cincinnati. The trial court's denial of summary judgment in favor of Cincinnati's coverage defenses was reversed and the issue remanded with instructions to enter judgment in favor of the insurer.