Professional liability insurance, handshake


Real professional liability insurance protects regardless of the cause and the result.

By Bruce W. Brownyard -- as published in Security Risk by Wilson, Elser, Moskowitz, Edelman & Dicker

How to insure against intentional and sometimes criminal acts is a hotly debated topic in the insurance business today. Some people in the business of insuring private security agencies narrow focus on assault and battery and change the definition of "occurrence" in the insurance policy to mean assault and battery instead of accident.

Besides defying logic, such an approach has been rejected by some courts and insurance regulators because it is against public policy to insure against intentional and sometimes criminal acts. And if the approach of specifying the assault and battery as being covered were sensible, why not specify other intentional and sometimes criminal acts committed by guards? Arson, sexual misconduct, malicious mischief and theft are other acts that security guards may be accused of committing. Should they also be specifically covered in the policy? We think not.

In addition to raising public policy questions in any case in which such an insurance policy is implicated, the approach is misguided because an employer is rarely, if ever, held directly responsible for the criminal acts of his employees. The common-law principle that the master is not responsible for the criminal acts of his servant provides the employer with some, but not complete, protection. Additionally specifying the type of acts that are covered leave fertile ground for litigation for whether the act which constitutes the basis of a claim falls within the coverage of the policy.

Notwithstanding the common-law rule, employers may be held vicariously liable if it can be shown that the employee’s intentional or criminal acts were foreseeable. Lawsuits of this kind invariably include wording alleging negligence by the company in their screening, training or supervision of the accused guard. If the company had properly screened, trained and supervised the accused guard, it is alleged, the company would have foreseen his propensities and would have terminated him before he had an opportunity to commit the act giving rise to the claim. Although the insurance company's duty to provide coverage might be ambiguous in a comprehensive general liability policy, properly worded errors and omissions endorsement would cover the claim.

But policies for private security agencies are often not properly written and do not provide the coverage which the company thinks it’s purchasing. Some insurers add wording to their general liability policy which does little but restate coverage that already exists under an ordinary comprehensive general liability policy. This wording reads, "This insurance applies to negligent acts, errors or omissions ... " Most insurance professionals would argue that this wording does nothing to broaden the coverage already provided under a standard general liability policy, because it does not broaden the definition of an occurrence and it limits the coverage to bodily injury and property damage set forth in the general liability policy.

Most insurance experts agree that a separate insuring agreement is required to provide real errors and omissions and professional liability coverage. The wording usually reads, "In consideration of the premium charged…, it is agreed that coverage afforded by this policy shall apply to all sums which the insured shall become legally obligated to pay because of any negligent act, error or omission ... " This wording is very similar to the wording of professional liability policies issued to architects, engineers, lawyers and accountants to cover their professional missteps.

Real professional liability/errors and omissions insurance provides protection against negligent acts, errors or omissions regardless of the cause (accidental or intentional) and regardless of the result (bodily injury, property damage or financial loss). The best way to demonstrate the importance of this coverage is to describe three claims involving one investigation agency and two security guard companies. We hope these examples will prompt you to carefully scrutinize your errors and omission coverage to make sure it's the real thing.

Example #1

A security company was hired to provide security at a large office building in a major city. During the contract period, numerous tenants cancelled or did not renew their leases, alleging poor security in and around the building. The building owner sued the security company for $5 million for the loss of rental income and for damage to the buildings reputation. . . Most commercial general liability policies would not cover this claim because it resulted in financial loss, not bodily injury or property damage. The claim would, however, fall within a properly worded errors and omissions endorsement.

Example #2

A group of investors hired an investigative agency to check out a developer they were thinking of investing with. The investigative agency gave the developer a clean bill of health. The investors invested $10 million in the developer's project. The project failed. The investors hired another investigative agency to find out what happened. The second agency uncovered that the developer had a poor credit history, numerous liens filed against him and a history of failed projects. The investors sued the first investigative agency for having performed an incomplete and inaccurate investigation and for having issued an incorrect report.. . Most commercial general liability policies would not cover this claim because it resulted in financial loss and not bodily injury or property damage. The claim would be covered, however, under a properly worded errors and omissions endorsement.

Example #3

A security guard was arrested for throwing a lit match into a display case at a shopping mall. The fire that ensued burned down over 20 stores, shut down the Mall for months and cost the lives of 2 store employees. Numerous lawsuits were filed against the guard service that employed the guard whose act of arson started the fire. The guard service's insurance company denied the claim on the grounds that the guard's act was intentional as well as criminal and therefore not covered under the guard service's General Liability Policy. Most commercial general liability policies would not cover this claim because arson does not fall within the definition of an occurrence. A properly constructed errors and omissions endorsement would pick up this arson claim, however.

Bruce W. Brownyard has been in the insurance business for the last 30 years. He is President of Brownyard Programs, Ltd.,a wholesale insurance agency. 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 information contained herein is provided for information purposes only and is not intended to be a representation of coverage that may exist in any particular situation under a policy issued by one of the companies within Crum & Forster. All conditions of coverage, terms, and limitations are defined and provided for in the policy. This information is intended for use as a guideline and is not intended as, nor does it constitute, legal or professional advice. In no event will Crum & Forster or any of its affiliates be liable in any manner to anyone who has access to or uses this information.