Managing Risk as Demand for Private Security Grows
In May 2021 the operator of New York City’s subway system announced a plan to spend $2.2 million a month on private security officers to address crime and improve public safety on its subways. The announcement was the latest in a growing trend across the country for local governments to contract private security officers to supplement or replace police officers.
In many ways, this trend looks similar to what happened a decade earlier, when the impact of the 2008 financial crisis led to slashed municipal budgets and contracts for private security officers to fill gaps. This time, demand is occurring after a period of social unrest, amid continuing calls to defund the police, and as the lifting of many pandemic restrictions brings people together again in large groups.
Like any business, private security firms look for opportunities to expand their business, but as they evaluate new business prospects in today’s environment, it’s important they also recognize—just as they did a decade earlier—the increased risks that may accompany new clients.
From a risk management perspective, concerns arise when a security firm is asked to perform work that is outside of the industries they usually serve and that is considered high profile. Work is usually considered to be high profile when security services are provided for large groups of people, whether it’s entertainment venues, stadiums, or city subway systems.
The primary concern is that with only a handful of security officers being tasked with protecting thousands or tens of thousands of people, it is difficult for the officers to monitor every aspect of activity. Even if a security officer cannot feasibly prevent an incident, such as an active shooting or bombing, security firms may be sued for failure to provide adequate security. While there was a temporary drop in active shooter incidents during the pandemic, these tragic events have begun to increase again.
Protecting low-income housing also presents security firms with some of the most severe risks. These properties are more likely to exist in high-crime areas, which not only puts officers in danger more frequently, but also puts the security firm at risk of a lawsuit if there is a violent crime. Similarly, protecting businesses more prone to robberies, such as cannabis dispensaries, poses increased risks for security firms.
Even if a security officer cannot feasibly prevent an incident, such as an active shooting or bombing, security firms may be sued for failure to provide adequate security.
As previously covered in Security Management, the U.S. security industry is in the midst of a hard insurance market, which means security firms are facing rising premiums and tightening underwriting guidelines. One of the primary contributors to this market is the concern about claims and costly legal settlements. That’s just another reason why security guard firms need to choose their business opportunities carefully while mitigating the risk that comes with their new work.
To mitigate their risk, security firms should always consult with their insurance partner before taking on a new contract. An insurance broker or carrier can help ensure security firms have the proper coverage in place—without exclusions that could put them at risk. For example, some insurance policies may exclude special events, which means a claim filed by a security firm involving work at a special event would not be covered.
Firms should also check their policy limits since high-profile work often demands higher limits of liability through the excess and umbrella markets. Excess and umbrella insurance provides additional limits beyond the terms or scope of an underlying policy. This insurance market is very hard at this time due to concerns over active shooter claims, which often result in jury awards that go beyond policy limits.
A second important step to mitigating risk when taking on a new type of work is to ask if you have the proper staff trained in the industry you are asked to protect. If working in a healthcare facility, for example, skills in patient restraint are necessary, while working in an arena or at a live event requires de-escalation training. This type of situational training prepares security officers for the risks involved in a specific industry.
The third way for security firms to protect themselves from liability—whether it’s a new type of industry or one with which they’re familiar—is to consult with legal counsel to ensure contract language does not increase their liability. It is important that the contract is clear in limiting liability to claims resulting from the security firm’s negligence and does not make the firm responsible for claims that are due to their client’s sole negligence.
While it’s tempting for owners of security firms to take advantage of every opportunity, they should consider their risks carefully before taking on high-profile work.
A growing trend over the past few years is an “action over” claim, which is a type of action in which an injured employee—after collecting workers’ compensation benefits from the employer—files a claim against a third party whose negligence allegedly caused the employee’s injury. In these cases, the security firm ends up paying the tort liability for injuries to its own employee, which generally results in significant payments. When entering contracts, security firms should consult with their attorney to determine ways of limiting their liability regarding this exposure.
Finally, security firms should always make sure post orders are clearly communicated and understood. Are security officers simply there to observe and report, or is the client looking for them to prevent a crime from happening? Security firms can limit their liability when their responsibilities are clearly defined in post orders.
Demand is high for private security today, and while it’s tempting for owners of security firms to take advantage of every opportunity, they should consider their risks carefully before taking on high-profile work, especially when it is outside of a firm’s expertise and experience. It’s a decision that should only be made after consultation with an insurance partner and mitigating risk carefully. Not only do their security officers need situational training, but security firms also need to ensure post orders and contracts are clear and do not add to their liability.
Tory Brownyard, CPCU, is president of Brownyard Group, an insurance program administrator with specialty programs for select industry groups. In addition to his responsibilities as president, he currently spearheads the Brownguard security guard insurance program. Brownyard is a highly regarded subject matter expert in the field of security insurance and has contributed to industry publications such as Security Management magazine and has been featured regularly in leading insurance publications. He can be contacted at [email protected].