An international operator of seismic and oil exploration equipment engaged a private security company to protect its personnel and equipment while deployed on exploration activities in the Horn of Africa. The security company had been pleased to be awarded the contract to provide such services, as it would potentially open the door to the provision of substantial ancillary services to the oil major behind the exploration project.
However, in its haste to sign the contract, the security company agreed to depart from its standard terms and accept the terms dictated by the seismic operator, which the security company did not thoroughly review.
The security company’s representative at the site of the seismic operations was an unarmed liaison officer, while the armed security services were performed by local soldiers subcontracted in accordance with the local law by the security company. Under the terms of the contract with the seismic operator, the security company was liable for the actions of its subcontractors, including the local soldiers, as if they were its own employees.
Among other roles, the security company was responsible for ensuring the safety of personnel and equipment on the site by enforcing a protective perimeter around the site. The liaison officer was responsible for ensuring the local soldiers conducted their patrols of this protective perimeter in an effective manner.
During the course of the seismic operations substantial amounts of equipment were stolen from the site as a result of ineffective patrolling of the protective perimeter. The contract did not include an express exclusion of liability for negligence and, when an English court found the security company's personnel and subcontractors had been negligent, the security company found itself responsible for the cost of replacing the stolen equipment.
Furthermore, certain of the items stolen constituted critical equipment, the loss of which forced the seismic operator to cease operations while replacements were sought. Unfortunately, the critical equipment could not be replaced locally and had to be manufactured in the United States and shipped to the site. Apart from the cost of shipping the replacement equipment, the stoppage resulted in a delay of three months, during which the seismic operator also incurred significant costs in maintaining its presence on site and having to pay liquidated damages to the oil major for the delay.
The seismic operator looked to the security company to recover such costs and, unfortunately for the security company, the contract between it and the seismic operator failed to exclude liability for consequential loss and, as a result, the security company was found liable both for the cost of the replacement equipment and the additional costs and liquidated damages incurred by the seismic operator.
In this example, a carefully worded contract would most likely have protected the security contractor from some or all of the losses. Moreover, prompt action by the security company after the thefts might have resulted in some or all of the equipment being recovered, thereby limiting the possible losses.
As well as mitigating risk, an insurance policy tailored to the needs of the security company would help ensure that when things do go wrong, the company has the protection and support to help it defend any claims and protect the viability of the contractor's business.