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Insurance for the Alarm/Security & Tele-Communications Industries.

Question: Which of the following need Anti-Virus Software, Firewalls and CyberLiability Insurance?

A. Internet,
B. VoIP,
D. All of the above.

The answer is D. All of the above need Anti-Virus Software, Firewalls and CyberLiability Insurance for the Alarm/Security & Tele-Communications Industries.


Two (2) way video over the Internet

Will do for Systems Integrators & Electronic Security

What HBO did for Cable TV

But Cyberliability needs To be Verified.

Michael J. Kelly.

***IP / VoIP / Internet (All-Digital Network) Insurance Disclaimer.***

Connecting Alarm Clients to an IP / VoIP / Internet (All-Digital Network) will expose the Alarm Dealer and his/her Clients to OTHER "Electronic Data" and different "Cyber" Liabilities that are NOT included in the Standard Insurance Coverages of "Tangible Property" (Phone Line Connections), General Liability, E&O or Property Coverages. Please consult with an informed Agent/Broker and/or Legal Advisor.

Michael J. Kelly Insuremce Agency ( is an informed Cyber Liability and Licensed (#0582597) Agency Specializing in Custom Insurance for the Electronixc Security Industry for over 28 years.

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  1. "The Story."
  3. "The Coverages."
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    "The Application (Adobe Acrobat)."
  1. "The Story."
  3. "The Coverages."

"The Story."

Some time about 1972 "HBO" came to the Cable TV Industry and launched one of the fastest growing success stories of our time. It is now 2006 and the Internet is about to hand over, to the Alarm & Communications Industry, "2-way Video" which will put new meaning into the words "Integrated Communications" and launch the world of IP Networks, System Integrators, Electronic Security, Medically Integrated and Tele-Communications Industries into the highs of Wall Street and far beyond the glory days of the Cable TV dynasties.

The Internet will bring cyberspeed for data, voice and 2-way video. Wireless (VoWiFi), cellular and radio (GPRS) networks will enable connecting clients to be "linked" to large, encrypted Internet Data Centers (IDC) nationwide and worldwide. Real time, 2-way video will link doctors to patients, baby sitters to moms and dads, grandparents to family members, Office to Office and verify ID access. Networks, over the Internet, will expand into Multimedia Services between Office and Clients and integration of emergency services from lifeline monitoring to healthcare support and '911'. Biometric systems will integrate health records, door access, computer, e-mail and web site control applications and help prevent unauthorized access by "rogue" employees and terrorists.

With the Internet evolution come the issues of Identity Theft, Electronic Data Exposure and Other CyberLiability. The FBI reports 9 out of 10 organizations in the country are the victims of some sort of computer security incident. Financial impact occured to over 64% of the respondents. Losses were due to viruses, worms, spy ware and data sabotage causing risk managers, legislators and plaintiff attorneys to take notice and legal action. The defense costs of the "chain of breach" can be in the millions of dollars regardless of who is found liable. This affects any person or company with a web site, e-mail, monitoring, interfacing with or downloading from another computer causing damage to that computer's data or software including corruption of, inability to access or inability to manipulate electronic data.

Over the years, Insurance Companies, in response to this ever-growing increased exposure, have modified the Property and General Liability policies intending to restrict coverage in connection with loss of electronic data and Liability. Prior to 1966 the definition of "property damage" was not defined (except with the insuring agreements). The result of the revised language was to stipulate that "electronic data is not tangible property" which excludes coverage. Exclusionary language in endorsements CG 0437 and paragraph "p" of the CGL policy's Coverage A is aimed at restricting coverage for loss of electronic data. Other endorsements "per company" are also added to policies such as "electronic data liability exclusions", "computer data exclusions", "malicious code exclusions", etc. Keep in mind limits of coverage are following form. If it's excluded it's not covered under the Liability or Property policies. This means no DEFENSE OR INDEMNIFICATION.

Two precedent-setting law cases have rendered opinions: In Ward General Insurance Services v. Employers Fire Insurance, the California Court of appeals, in 2003, held that data is not considered tangible property in the context of a PROPERTY POLICY. Therefore, a loss of data would not constitute a direct physical loss. Similarly, the 4th Circuit Court, in AOL v. St. Paul Mercury Insurance Co., that same year found that computer data is not tangible property under a GENERAL LIABILITY POLICY.

Clearly, solutions to mitigate Internet Liability (CyberLiability) need to take a high priority with management. It is necessary to build a check list and appoint a risk manager to follow up on the following issues and others.

  1. Employees' training and policy statements on data use and disaster recovery need to be ongoing with monthly meetings and updates.
  2. Implement anti-virus software, hub and firewall security networks and have Internal and external review of personal backgrounds.
  3. Approve an IP and IT network department to keep up with all the changes in technology, legal, privacy-human resources risks and issues.
  4. Other Issues of committees and/or management require review.
  5. Review, with your Insurance agent or broker, coverages and exclusions in your existing General Liability, Professional Liability and Property Insurance Policies. It's important to review and identify and connect liabilities and loss of property including electronic data and tangible property exposures. Consider adding network or CyberLiability Insurance to include false or misleading advertising, personal injury, identity theft, Equipment Sales/Installation/Monitoring E & O, viruses in web site, e-mail, monitoring, and data storage both on and off line. Allegation of intentional wrongful conduct, unauthorized access, disconnect or viruses of "rogue" employees or 3rd party contractors, contingent BI/PD and prior acts coverage, Copyright/Trademark Infringement should all be a big part of your checklist of coverages.

Remember that Internet Liability is like looking at an iceberg. It may be deeper than it looks.

If any issue remains unclear, more home work is required. There is "no shelf life" to sound insurance coverage. That's why, after 27 years as the owner/founder of my Insurance Agency, I am writing this article.

Michael J. Kelly is the founder (1978 to Date) and Owner of Michael J. Kelly Insurance Agency Specializing in Electronic Security & Communications. From 1968 to 1977 he was a Cable TV Pioneer. He was Founder/President of Cable KOR Communication, one of the largest privately owned Cable TV Companies and Cable Contractors in California. The information in this article is not rendering legal advice or services. Before making any decision or taking any action, you should consult a trusted insurance broker or agent and legal advisors. Mr. Kelly can be reached at 800-329-5355, /, /

Date: 2/23/06.

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A Photo of Michaek J.Kelly.

  By: Michael J. Kelly,

Secure Data and Alarm Security:

The World Wide Internet is here to stay and the Alarm Industry growth and future service will need to have a "perimeter of security" to safeguard "Electronic Data" for all it's services, especially Security Electronic Safety Monitoring.


The concern of Secure Data over the Internet is National and Worldwide with deep pocket exposure. Warnings of VoIP use for alarm monitoring came last year from Congress in Bill SB525 with notification to customers that the use of VoIP connections may cause disconnect of alarm services. The PUC does not certify alarm monitoring over the Internet/VoIP circuits. The FCC has required all Internet Companies to comply with 911 emergency support standards now lacking. In Europe, Internet "open space" Security Data standards are being developed.


The general public's view of alarm security today is peace of mind and confidence, as the Alarm Industry moves more and more into the use of Internet "open space". Electronic Data Security will become more important to the industry than the false alarm exposures.


The gateway to the Internet comes through everyday e-mails and web site portals. Security Electronic Safety Monitoring for fire, burglary, access control with video, biometric identification, and CCTV are all "Electronic Data" transmissions 24/7 that require "Secure Data." Those services should be within the control of the Alarm Dealers "perimeter of security" that needs to be extended between the Alarm Dealer and his/her clients that guard against Data Virus losses.

It is this writer's view that "2 way video" over the Internet will be the Alarm Industry's future ("HBO") key connecting the "smart home" with video monitoring that will include real time viewing of baby sitting, medical emergency confirmation, door access verification, and false alarm eliminations, opening the door to "multi-use" systems to include Internet Protocol Television (IPTV)


As the Security Industry works to establish Secure Data standards the following list of Electronic Data Liability exposures are some of the items to include in planning mitigation and insurance responsibility and protection.


  • Web site, e-mail, Internet equipment sales and alarm monitoring over the Internet;

  • Viruses (accidental or unknown) causing wrongful 911/fire/burg/access disconnect and causing contingent BI/PD;

  • Consulting, designing and installation of "Internet equipment" used for alarm fire/burg/911/medical/door access control;

  • Unauthorized access, identity theft by "Rogue Employees" or "act of cyber terrorism" exposes the Alarm Dealer to a "chain of breach" liability;

  • False or misleading advertising, personal injury from e-mail and web sites;

  • Trademark & copyright infringement from e-mail and web sites;

  • Punitive damages (where allowed by law) - Internet E & O liability;

  • Property damage to software/hardware causing loss of income to clients;

  • Coverage for Alarm contracts with Internet disclaimers requiring defense will not be found within a General Liability policy. Coverage required by Internet "Electronic Data" policy;

  • Prior acts of Cyber liability;

  • Other.

To mitigate Internet Secure Data Liability one needs the use of anti virus software, Hub fire walls, inspection of computer spy ware, and the follow up with a full time department head that will coordinate virus detection and insure internet control standards are in force.


"Electronic Data" insurance is not found within a General Liability E & O policy. This is because it is based on "tangible property" and the definition of this coverage is for real property and bodily injury not "Electronic Data".

On the other hand, Internet liability is based on "Electronic Data" which goes over the World Wide Network. Insurance for Electronic Data Liability provides coverage for two (2) main exposures, and covers first party & third party liabilities.

  1. First Party (YOU):
    • Virus hacking;
    • Software danger to your website, computer, and monitoring equipment;
    • Computer, e-mail extortion of data, ID theft;
    • Interruption of services, loss of income;
    • Electronic Data, sabotage by terrorism including Rogue Employees.

  2. Third Party (Your Clients) Exposure of suits may be brought:
    • Virus hacking - you are included in the "chain of breach";
    • 911/Alarm monitoring unauthorized disconnect;
    • Client, video and Data information theft;
    • Website protocol and e-mail, personal injury, defamation/advertising;
    • Technology, E & O, breach of confidentiality, software performance;
    • Copyright & trademark liability;
    • Breach of contract for Electronic Data;
    • Rogue Employees or act of terrorism, unauthorized access, identity theft of Electronic Data including video;
    • Contingent, bodily injury & property damage;
    • Prior acts for defense and indemnification.

The Internet is open 24/7 and so is alarm monitoring. The failure of a phone or Internet/VoIP circuit is not the responsibility of the Alarm Dealer, it's the exposure to Data virus.

The Alarm Dealer is exposed on a 1st and 3rd party basis - Data virus contamination that can strike both ways (you and your clients). Electronic Data insurance can and should cover both parties.

Michael J. Kelly is the Founder 1978 to date (29 years) & Owner of Michael Kelly Insurance Agency, specializing in Electronic Security & Communications Insurance. From 1968 to 1977 he was a Cable TV pioneer -- Founder/President of Cable KOR Communications, one of the largest privately owned Cable TV Companies and Cable and Communications Contractors in California. The information in this article is not rendering legal advice or services. Before making any decision or taking any action, you should consult a trusted Insurance Broker or Agent and Legal Advisors. Mr. Kelly can be reached at 800-329-5355 - -


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"The Coverages."


  • Insurance Company: A XV Rated;
  • Alarm Monitoring 1st & 3rd parties, Sales of Equipment & Data over
         Internet/VoIP, Including E-Mail;
  • Limits: $1,000,000 Each Wrongful Act;
  • Limits: $1,000,000 Total Aggregate;
  • Including Terrorism;
  • Deductible: each act.


  • Defense and Indemnification per Policy for Internet/VoIP Liability; Including Equipment Sales, Web Site, E-Mail & Alarm Monitoring.
  • Viruses (accidental or unknown) or malicious code in data or systems Liability; Including alarm monitoring.
  • Unauthorized access 1st & 3rd parties' Liability; Including alarm monitoring.
  • Defense for allegation of intentional wrongful conduct; Including alarm monitoring disconnect.
  • Advertising & Personal Injury over the internet; Including web site data and/or e-mail liability.
  • Trademark & Copyright infringement liability.
  • Coverage of punitive damages (where allowed by law).
  • Unauthorized access or other wrongful conduct including virus "disconnect" of "rogue" employees; Including Terrorism.
  • Coverage for both distribution of content and errors & omissions in services, Web Site, E-Mail, Fax or Mail or sales of equipment (both on-and-off line).
  • OPTIONAL COVERAGE: Prior acts coverage for qualified accounts, Contingent BI/PD.

The CyberLiability Policy covers "Electronic Data" Liability because it is not tangible property. When data to a client of the alarm dealer is accidentally or wrongfully damaged by a virus sent by the alarm dealer's electronic equipment (monitoring equipment, test equipment, etc., "on or off line") an unauthorized disconnect is the responsibility of the alarm dealer. This is CyberLiability. The malicious code actions of a "rogue" employee or monitoring sub-contractor that, due to viruses, disables alarm equipment causing an unauthorized disconnect is CyberLiability. Keep in mind that Viruses from terrorists are only covered by CyberLiability with terrorism coverage. This includes Contingent BI/PD and Prior acts.

CyberLiability is false advertising and personal injury over the internet (web site, e-mail) including copyrights/trademark infringements.

The property (electronic data) of the alarm dealer, when damaged by virus, is covered by a CyberLiability policy. This could come from an act of terrorism or a 3rd party monitoring Company who sabotages data through the alarm equipment installed by the 1st party alarm dealer. Identity Theft, unauthorized access if over the Internet from the alarm dealer to his clients, or if the alarm dealer's assets are damaged, is CyberLiability.

Both General Liability and CyberLiability policies are needed to provide defense and indemnification to the alarm dealer for the "cross liability" and the "Chain of Breach" that supports the alarm contracts.

On the Property side of coverage, a Property CyberLiability policy is needed to provide coverage for "electronic data" damage due to viruses.


Michael J. Kelly Owner/Founder 1978,
Agent/Broker/Surplus Lines Broker,
Lic # 0582597.

Michael J. Kelly Insurance Agency,
1174 Palomino Road,
Santa Barbara, CA 93105.
Phone: 800-329-5355, Fax: 805-569-8864.

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We provide Security and TeleCommunications Insurance products to most areas nationwide.

Michael J. Kelly Insurance Agency (MJK) may be contacted in several different ways.

  • Toll Free Telephone: 800-329-5355.
  • Local Telephone: 805-682-0113.
  • FAX: 805-569-8864.
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