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A Good Contract Can Limit Your Liability By Torrence Brownyard and Steve Buckley The Brownyard Group www.brownyard.com When security guard firms take on a new client, often they are anxious to sign a contract and close the deal as quickly as possible. But careful attention should be paid to the wording in the contract – especially regarding financial responsibility in the event of an incident or lawsuit. If it is your company’s own standard contract, we assume you have had your attorneys draft it and approve it. However, problems arise when you are asked to sign a non-standard contract supplied by the client. If the contract language is too one-sided in favor of the client, your guard firm could be leaving itself unprotected. Bad Contract Example To understand the potential impact of bad contract language, it helps to consider the “what ifs” that could occur in the event of an incident. For example, let’s say a contracted security guard is assigned to a manufacturing facility. While doing his rounds, he is struck by a forklift, which is operated by an untrained employee of the client driving too fast and unsafely. The guard is severely injured. Even though the fault in this accident is clearly with the client and its untrained forklift operator, the guard firm – and not the client – is held liable for the losses. Why? In the contract, the guard firm had “indemnified” the client for any accidents involving the guard. In other words, the client has shifted all its financial responsibility to the guard firm. As a result, the guard firm is held liable for what could total close to $1 million in damages related to the guard’s injuries. And, to make matters worse, because the accident resulted from the sole negligence of the client, the guard firm’s insurance will likely not cover the damages. To add insult to injury, if the guard firm had agreed to a “waiver of subrogation,” which means it agreed to waive its rights of recovery against the client for their negligence, then it could not recover money paid in workers’ compensation claims to the worker. Even worse, if the guard firm is self insured for workers’ compensation, it bears an additional financial burden. Clearly, this is a worst-case scenario, but one we have unfortunately seen time and time again. It really points out how careful you have to be when signing a contract with a client. Taking on your client’s liability, finding your costs uncovered by your insurer and being unable to recover workers’ compensation claim costs could have serious, if not devastating financial consequences for any guard firm. Who and What Are Your Protecting? More common claims arise out of violent acts where it is alleged that a security guard was negligent or provided inadequate protection. If that violent act occurs against an employee of the client, then it very well may be the guard’s responsibility. But what if a delivery person comes to a facility and is mugged? Is the security firm liable? Not if the contract and post orders clearly state that the guard is responsible to protect the client’s property and the client, but not third parties. Keep in mind that numerous court decisions have held private security firms liable for injuries to persons the security firms did not contemplate protecting. These claims occur at the client’s premises with injuries to contractors, deliverymen, customers, guests and even the general public. Similarly, guard firms may be held liable for violent acts that occur outside the physical location they are assigned to protect. For example, if you are contracted to monitor visitors in an office building and are responsible for safety only inside the building, then your post orders should clearly state the parameters of your responsibility. If someone is the victim of a crime in the parking lot, you should not be liable. Remember, even if the contract is silent as to the duties of your security officers, you might be deemed to have assumed the duty to protect others if it is either in your post orders, or you have taken on this responsibility through your actions. The key to preventing these situations is a carefully worded contract that does not hold you responsible for claims related to third parties or for incidents in locations that are not clearly stated in your post orders. Contract Language Scenarios When approaching a contract, many clients will naturally try to transfer as much risk as possible to your guard firm, so it is essential to understand who and what you are responsible for. Ideally you will write your own contract and transfer as much risk as possible to your client. For example, the best-case scenario for a guard firm is to clearly state that:
Of course, many clients will not agree to such broad wording that transfers all the responsibility to them. But it doesn’t hurt to ask. Another very effective approach is to make it clear that security services are being provided only to the client and its employees, and there cannot be a third-party beneficiary. As described above, your guard firm should not be responsible for customers, delivery persons or anyone else who comes onto the client premises. While some clients may be resistant to these terms, you should try to at least have “hold harmless” wording that holds your firm harmless for any incidents that result from negligent acts or omissions on the part of the client. Additional Insured Endorsements In addition, you should try to avoid naming your client as an “additional insured” on your insurance policy for their negligence. If you do, then claims related to that client, their property and employees may be covered under your insurance policy. At best, any additional insured coverage should be limited to liability arising out of your work and losses caused by your negligent acts. If the client insists that you provide them with additional insured coverage, than consider language such as the following: "Furthermore, the parties expressly acknowledge and agree that Customer/Client is not an additional insured on those policies carried by the Contractor, for the passive or active negligent acts, omissions or intentional conduct of Customer/Client, and its subsidiary and affiliates, and its employees or agents.” The Bottom Line Some clients will reject your wording or insist on the terms of their standard contract. In this case you are faced with a business decision – how much financial responsibility are you willing to take to secure this client? That is your decision, but we suggest that – at a minimum – you always advise clients in writing of the scope of your responsibilities and that your firm cannot provide complete protection for all persons or property. Under no circumstances, should your firm indemnify or hold harmless your client for claims arising from their sole negligence. Before signing a contract, we also recommend reviewing any ambiguous contract language with your local insurance broker and attorney to make sure that you are not exposing yourself to liability that you are not properly insured for. Guard firms, especially small- to mid-sized firms that are trying to build their business, are understandably anxious to secure new clients. But you need to balance new business and your company’s growth with careful contract wording that protects your firm’s long-term financial health. Torrence Brownyard is president of Brownyard Group (tbrownyard@brownyard.com) , a program administrator that has been a leader in meeting the insurance needs of the security industry for 60 years. Steve Buckley is President of Brownyard Claims Management, (sbuckley@brownyard.com), a loss prevention and full-service claims subsidiary of Brownyard Group (info@brownyard.com) Tel: (800) 645-5820
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