What is the primary exposure for a security or investigative agency? According to Karen Izzo, president of Izzo Insurance Services, Inc., one often overlooked is, “The result of contracts intentionally drafted to transfer liability to the security company when the security company has no control over the situation giving rise to the claim.” Torrence W. Brownyard, CPCU, president of Brownyard Group states, “Because security guard claims involve complicated indemnity and additional insureds, it’s important that the program manager or the insured offer a dedicated and knowledgeable claims facility.”

David Toombs, vice president commercial underwriting of Arlington/Roe, Inc., points out some types of security situations that might be difficult to place, including heavy crime areas with low income housing, airport security, any type of power plant, armored cars, military bases, bounty hunters, repossession operations, bodyguards for celebrities, municipal buildings in high profile cities or situations, certain types of political rallies and certain types of concerts. Mr. T. Brownyard adds that some international exposures, such as security contractors doing work in the Middle East, are also hard to insure.

What coverages should each of these agencies consider as primary? Peter Costanza, president of Costanza Insurance Services says, “In addition to workers compensation, a security firm should have a commercial general liability (CGL) policy that includes errors and omissions, personal injury, full care, custody and control coverage, and assault and battery coverage.” According to Bruce W. Brownyard, president of Brownyard Programs Ltd., the errors or omissions/professional is a particular concern. He believes that “particularly for a guard company, the financial loss from an errors or omission loss is most significant, yet many of the carriers really don’t go there.”

Mr. T. Brownyard adds fidelity coverage and, "depending on the specifics of the firm, umbrella liability, auto, property and EPLI coverages.” Mr. B. Brownyard agrees with the need for fidelity coverage but warns that the coverage must be reviewed carefully. The security guard company needs a third-party rider so that coverage extends to the client’s property and coverage should not include a conviction clause since most guard thefts don’t end up in convictions, because of plea bargains, etc.

Security guard firms and investigative agencies also require some specific CGL coverage extensions. Ms. Izzo believes that every security guard firm should purchase policies that include assault and battery, personal injury, contractual liability, theft of property in the insured’s care, custody and control, lost key, blanket additional insureds, independent contractors, mace or pepper spray pollution and golf carts as mobile equipment. Mr. Costanza includes coverages for canine and firearms in his coverage listing. Mr. B. Brownyard adds that coverage for the vicarious liability of the agency for the intentional acts of its employees is very important.

Exclusions may cause significant coverage gaps for these security guard and investigative agency businesses. Mr. T. Brownyard points out, “Some insurers will specifically exclude work for certain types of clients that a security guard firm may do work for. This is problematic, as the insured or broker has to review the policy each time a new client comes aboard to be certain the policy form provides coverage.”

Mr. Costanza puts it very simply. “No exclusion should be accepted if the prospect does the work it excludes.” He clarifies this by explaining that, if the agency works with dogs or firearms, exclusions relating to their use are unacceptable. According to Mr. Toombs, weapons exclusions should be reviewed carefully because, “This is much broader than guns. It could include everything from brass knuckles to knives, tasers to guns.”

According to Ms. Izzo, most programs for security companies provide coverage on a non-admitted basis. Mr. Toombs agrees but adds to that statement by saying that when admitted markets do offer coverage, "Their appetites lean more toward operations in unarmed, uniformed, low traffic and low profile environments. There must be minimal involvement with people in stressful or inebriated conditions with no guard dogs.”

The Brownguard program from W.H. Brownyard is written through Arch Insurance Company which according to Mr. T. Brownyard, it one of the few admitted insurers providing coverage to the security guard industry. He believes that the rest of the insurers offer coverage on a non-admitted bases. One last point made by Mr. Costanza is that just because one portion of the risk is in the non-admitted market doesn’t mean that all coverages have to be. Costanza Insurance Services works with Zurich North American where the workers compensation, umbrella, and crime coverages are written on an admitted basis while the general liability is written on a nonadmitted basis.

Capacity does not appear to be a problem for these types of operations. Our experts all agreed that CGL limits of $1,000,000 were easily obtained for the majority of risks, with excess capacity readily available up to $10,000,000. However, Ms. Izzo does include a word of caution. “Several umbrella policies are not written on a true follow form basis and exclude essential coverage such as professional. If the insured has agreed contractually to provide an umbrella policy, and that policy does not have the same broad coverage as the underlying policy, there may be serious coverage gaps."

The marketplace is providing the capacity and, according to Mr. Toombs, rates currently favor the buyer, at least for the elements presenting low exposures. Mr. Costanza sees the workers compensation pricing stagnating or bottoming out and possibly readying for a slight increase. He and our other experts all believe that CGL remains very competitive. According to Mr. T. Brownyard, even though no new competitors are entering the marketplace, rates for the average guard firm have softened by as much as 10% in the past year.

Another important market consideration, according to Mr. T. Brownyard, is a change in underwriting appetite. He says, “There has been a tendency for some insurers to lower their underwriting criteria to insure guard firms that would not have fit into their underwriting guidelines several years ago, and it will take a few years to see if these decisions were prudent.“ Ms. Izzo points out how quickly markets can contract, saying, “The availability of markets providing coverage for security companies was greatly reduced after the terrorism attacks of 9/11. I believe that any additional acts of terror will have a similarly significant adverse impact on the available markets for this industry.”

Our experts agree that coverage must be sought that recognizes the unique relationships a security firm has with its clients and the general public. Coverage differences between carriers must be evaluated carefully to prevent gaps in coverage due to the type of customers served or the type of services provided.

Ms. Izzo shared one final point. She is very concerned about the contracts security operations have with their customers because “security” is an undefined term. It could include lighting, fencing or areas of operations over which the security company has no control. For that reason, she suggests that an attorney review all contracts. One important area to watch for is that any indemnification in the contract should “not be for security operations but rather for the negligent operations of the security company.”