In the world of business insurance, we can be fairly criticised for using terms that are not in everyday use. Great strides are being made to try and address this and, even compared to a few years ago, insurers wordings are becoming easier to understand.
One of the words used, which causes some confusion, is Efficacy. We either talk about it in the terms of an exclusion of efficacy or rarely an inclusion of efficacy.
Efficacy is defined as the capacity to cause an effect. A widget manufactured by company A and used by company B in one of their machines, may fail. If it breaks and causes damage, or injury, then this should be covered under a standard products liability insurance. If however the widget just does not do what it is supposed to, and lets say production stops or is diminished, then there is no product liability loss. It is the failure of the widget to perform it’s intended function that has caused the loss.
This is what is excluded under nearly all commercial insurance contracts. The failure to perform the function (of the widget). For this reason efficacy is usually purchased as an extension to a public and products liability policy. It is a cover that is “bought” back in. Yes it costs more, but the potential for losses are much, much higher.
Certain trades, such as fire, security and intruder alarm companies need to have this cover before they are allowed to undertake contracts or join trade bodies. This is where it gets slightly more difficult though, as less and less insurers are prepared to provide this cover. Imagine an intruder alarm, failing to work and an office block being broken into. The insurers of the office will have insisted on their being an intruder alarm. The owners of the office have done all they can to comply and their will then be a claim against the alarm company.
Businessinsure have access to certain markets where efficacy is provided, if you need this cover, call us today.