Over the past twenty years, the investigation and security services field has seen considerable expansion due to a rapid rise in business and technology.
A number of jobs that used to be handled by police forces are now performed by private firms. A large share of security activities in North America now falls to non-governmental agencies. In major metropolitan cities, business improvement associations are hiring private security firms to patrol the downtown streets. Private consulting firms regularly conduct investigations of suspect financial operations and in urban areas, private companies are hired to protect large industrial complexes. As businesses reassess their security plans and new are technologies being introduced at lightning speed, the private security sector has become a multibillion dollar industry and is only getting bigger.
Yet are these companies that are in the business of protecting their clients, protected themselves? A very crucial coverage called “Failure to Perform” is lacking in many insurance policies that are specific for this sector.
Let’s look at a simple example of a security company hired to protect a retail outlet. For those who followed the Jerry Seinfeld show, one episode had George supply a security guard with a chair so he did not have to stand all day. Ultimately this proved costly as the guard fell asleep during a robbery. It may have been all laughs on the show but in reality a situation like this would cost the Security company their contract in addition to a potential lawsuit for the failure of service resulting in thousands of dollars that was taken during the crime. If this claim was presented to the insurance company, the claim would be denied leaving the security company on hook for the entire loss.
An example of “failure to perform” coverage is listed below from an insurer that specializes in this area of coverage.
We will pay those losses resulting from the failure of THE NAMED INSURED’S PRODUCTS or THE NAMED INSURED’S WORK performed by or on behalf of the Insured to meet the level of performance, quality, fitness, or durability warranted or represented by the Insured and including loss of use of tangible property of others provided that such accident or occurrence happens or commences during the policy period, subject to the limits of liability, exclusions, conditions and other terms contained herein.
The first sentence is the key as it clearly indicates the policy will cover losses from the failure of the insured’s WORK. The example above would have been covered if the insurance policy had this special clause embedded in the policy wording. Other examples that would fall into the category of Failure to perform are
- A sprinkler contractor accidentally discharging the system while performing maintenance
- A security camera installer cutting a major electrical artery
- A locksmith cutting a Master key for a specific industry that has strict protocols
Many standard insurance policies that are issued to the Protection Services industry are lacking this coverage. It is imperative that brokers and business owners seek out this coverage in the policy. A few minutes can save thousands of dollars. If it is not offered, ask the insurer if the coverage can be added on as an endorsement, otherwise seek out a policy that can offer this protection. There are insurance companies that specialize in this class of business and can offer this coverage at premiums comparable to or less than regular CGL policies.