Who Will Guard The Guards?
—by Bruce W. Brownyard
from Security Risk, Fall 1995

"Quis custodiet ipsos custodes?"

Our quotation is taken from a latin phrase of early Roman times; translated to English, it means, "Who will guard the guards?" This concern of the Romans over the trustworthiness of the protectors of their empire is a concern shared by modern day society as well. Our guards have also had their problems - problems which, unfortunately, many members of the security industry have neither recognized nor dealt with.

It is, nevertheless, a not so well kept secret amongst private security agencies and the insurance companies that insure them that, besides not always preventing crimes that they should have prevented, guards also commit some crimes. We are always stunned when a private security officer who was hired to protect property steals it or burns it down, or when a guard who was hired to protect life takes a life. But it is a fact of life today.

Having insured private security agencies for more than 30 years, I have seen, and continue to see, instances where guards have not only acted in a negligent manner, but also in a criminal manner. Although these types of claims involving private security guards occur infrequently, they do nonetheless occur.

In Defense

In defense of the private security guard industry, it should be unequivocally stated that many of its problems are not of its own making. Contract guard executives would love to pay their guards more, but many of their clients can't or won't pay the extra cost. Consequently the typical guard in this country continues to be paid little more than the minimum wage. Executives would also like to screen, train and supervise their people better; but once again, the security buyer many times can't or won't pay the additional cost.

And state legislatures throughout the country haven't been very helpful in passing meaningful legislation to improve and upgrade the standards of the private security industry. It is a sad fact, but some states still have no mandated minimum requirements for private security guards, In a number of states, it's just about impossible to even get a fingerprint check on a prospective guard. The fact is that the average security guard in this country is underscreened, undertrained, undersupervised and underpaid.

In light of these problems and limitations, it becomes all the more important to answer the question, "Who will guard the guards?" Our answer is insurance. If all else fails, insurance should guard the guards.

As a security director, risk manager or purchasing agent for a company that hires contract security guard services, it is your responsibility to make sure that the guard service carries adequate and proper insurance, not only to protect itself but also to protect you. Under the law of agency you could be held liable for a guard's negligent or criminal acts.

The problem with insurance for a guard service, though, is that insurance carriers have not always been willing to provide adequate and proper insurance for them. In many instances, they will not insure a guard service at all and in other instances, they will only provide very limited coverage.

Problem Areas

It therefore becomes imperative for you to carefully scrutinize a guard service's insurance policies to confirm both their existence and their adequacy for the type of work they are performing. And in our experience, the three most significant problem areas are general liability insurance, umbrella or excess liability insurance and fidelity bonding. In all three of these critical areas, the vast majority of guard services in this country are inadequately insured.

General Liability

Let's first discuss general liability insurance. Unfortunately, the standard liability coverage was not designed to provide financial protection for the many and unusual exposures of security firms. It was really designed to cover storekeepers, landlords, manufacturers and other operations where exposure to liability claims lie chiefly on the owner's premises. That's exactly where security guard agencies liability exposure is NOT found. Their vulnerability is almost entirely away from their premises - at other locations where they conduct operations. This is completely unlike the situation of those enterprises for which the standard liability policy was originally intended.

It is obvious that a security firm must have a custom-made policy that negates exclusions, sews up loopholes and effectively broadens the scope and intent of the standard policy. Besides utilizing a comprehensive liability form which includes independent contractors and completed operations coverage, the policy should include endorsements providing assault and battery coverage, full personal injury coverage, broad form property damage coverage, errors and omissions coverage, contractual coverage and punitive damages coverage.

In addition to verifying coverage, we would also recommend high minimum limits of liability. In light of the size of current jury awards involving the security industry, we would suggest limits of liability of at least $1 million. Which leads us to discuss excess liability.

Excess Liability

In the event that you feel that the security company should carry even higher limits, you should make sure that the umbrella or excess liability insurance it carries follows form with the primary general liability insurance we have already recommended. Unfortunately, most of the excess or umbrella policies offered to guard services today contain so much exclusionary wording that the very purpose of the insurance is negated. We would recommend that a security guard service today carry at least $1 million of umbrella coverage in addition to $1 million of general liability coverage. We suggest umbrella rather than straight excess because an umbrella also extends to a guard service's underlying auto and employer's liability insurance.

Fidelity Bonding

The third critical area of insurance for a contract guard service and probably the most misunderstood is fidelity bonding.

How many times have we all seen the phrase "licensed, bonded and insured" in the advertisements of security guard services around the country.

To the general public, to security directors, to many security service executives and even to insurance people, the word "bonded" presumes that the guard service's guards are bonded by an insurance company against their dishonest acts.

Unfortunately, this presumption is incorrect with respect to the majority of contract security services in this country. When most guard services mention "bonded" in their ads, they are referring to the license bond that they are required to obtain by the state in which they are providing services. This license bond provides no protection to the guard service against a guard's dishonesty or infidelity; rather, it provides but limited protection to the state issuing the license to assure the proper performance of duties specified by the license.

Other guard services use the word "bonded" in their advertising and do in fact carry a standard fidelity bond; however, this standard fidelity bond protects them only if their employee steals from them. It does not protect them or their client if their employee steals from a client or other third party.

A more recent development regarding "bonded" guards has been the introduction of a business services bond or a fidelity bond with a "conviction" clause. This bond extends the standard fidelity bond to include employee theft from third parties; however, it usually includes a clause stating, "In order to protect you and your employees against unjustified allegations of dishonesty, the employee must be convicted before coverage will apply." This clause renders the bond almost useless because convictions are very hard to get; often the guard can not even be found.

The proper type of insurance to protect both a guard service and a client against a guard's dishonest acts is a third party fidelity bond, which protects both the guard service and the client. With this type of coverage, the guard service's guards are truly "bonded," and both the guard service and the client's property are insured against a guard's dishonest acts. There should be no prerequisite that a criminal conviction of the dishonest guard be obtained. All that should be required pursuant to a proper third party fidelity bond is that if an identifiable guard stole a verifiable amount of money, equipment or materials, then the bonding company will pay.

Regarding a bond amount, based on our experience we would think that a $100,000 limit of liability would be sufficient for the average guard service.

Word of Caution

One final word of caution not only about fidelity insurance but also about general and umbrella liability insurance: Check out the insurance carrier writing the policies. Because guard services are a forbidden class of business for most standard insurance markets, many non-standard, excess or non-admitted carriers are writing guard services today. If a guard service is insured by a non-licensed carrier, you should confirm whether it is approved by your state insurance department and whether it is financially sound and reputable. Regrettably, there have been a number of non-licensed insurance carriers insuring guard services over the years that have been declared insolvent, thus leaving guard services and their clients to pay unpaid claims.

In the final analysis, guarding the guards rests on the shoulders of the guard service's insurance. But as we have discussed, insurance for a guard service is not always what it appears to be. It therefore becomes incumbent upon the security director, risk manager or purchasing agent for a company that utilizes contract guards to assist in guarding the guards by confirming the existence and the adequacy of the insurance the guard service carries.

Bruce W. Brownyard has been in the insurance business for over 30 years. He is President of Brownyard Programs, Ltd., a newly formed wholesale insurance agency that is based in Islip, New York. He has a B.A. Degree in Communications from St. Louis University and is a well known speaker and writer on the subject of insurance as it relates to the private security industry. This article was adapted from a presentation given by Mr. Brownyard at an annual conference of the Risk & Insurance Management Society (RIMS).