Armed Guard Pact May Lack in Security

There came a day when the armed guards Howard Ader had hired to patrol his carwashes gave him no sense of security. That was the same day he took a close look at the contract he had signed with the security firm he hired.

“When you sign up with a security company, you take full responsibility for their actions,” he said.

To his surprise he learned that he could be held liable for the security company’s conduct as well as his own.

“They have third-party protection,” said Ader, a Sherman Oaks resident who owns six carwashes in the San Fernando Valley. “If a third party sues [your security company], you’ve already agreed to hold them harmless and indemnify them.”

In other words, if a third party sued a guard--say, for being injured in a struggle--the security company could bill the client for its defense costs and any judgment it had to pay. Ader then called his insurance provider and asked if the insurer would cover legal bills incurred by security companies in such a situation. His insurer gave no assurances that it would.

Barry Bradley, a lawyer for the nonprofit California Assn. of Licensed Security Agencies, Guards & Associates, said indemnity clauses are “pretty standard” in contracts with security companies. But he said he has never seen litigation over such a matter and that most indemnity clauses are conditional on good behavior by security firms.

“Even when the contract solidly states that the client will agree to indemnify the security company,” they only have to indemnify reasonable acts, Bradley said.

He acknowledged, however, that the interpretation of a “reasonable act” could be subject to dispute in many circumstances. Bradley was confident a security firm found negligent would pay its own legal fees and compensate its client. But he conceded that while the “reasonableness” of an act was being debated in a court, the client would be obligated to foot the bill.

Bradley said most security company clients need not worry because their insurance companies would typically protect clients.

But State Farm Insurance spokesman Craig Peterson gave no assurances that insurers would fulfill indemnity agreements between security firms and policyholders. Peterson said State Farm deals with liability issues on a case by case basis.

“This is very problematic,” said Assemblyman Bob Hertzberg (D-Sherman Oaks), chairman of the Public Safety Committee. “What we have is a situation where you go out and buy a homeowner policy that has an exception in there for the liability for the security company, at the same time the security company has an exception for its own liability--so in essence the individual is self-insured.”

Chris Davis, legal director at Pinkerton Security Investigation Inc., said liability issues are negotiable at his firm.

“It can range from the client bearing all the liability to us bearing some portion of it,” he said. “The division of risk would be one of the factors in pricing.”

Depending on the clout of the client, Davis said, a security firm may be obliged to take on all the risk, as is the case with many large corporate clients of security firms.

For instance, once Howard Ader discovered the indemnity clause in his security contract, he tried to negotiate with his security company. When it refused to budge, Ader went shopping until he found a firm that did not require an indemnity clause.