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Liability lessons: security on trial.

Liability Lessons: SECURITY on TRIAL

ARE BUSINESSES TAKING CHANCES WITH LIability? Perhaps. Apartment complexes, hotels, retail stores, shopping malls, and similar business enterprises failing to provide security protection may be found liable for punitive damages when tenants, clientele, or other invitees are injured by criminal acts occuring on the premises. In many jurisdictions, such punitive damage awards are not permitted to be covered by insurance and must be paid solely from the coffers of the business. However, these devastatingly expensive and punishing jury awards may be avoided (and even overturned) when the operator or owner of a commercial property can demonstrate that security measures were in place at the time an incident occured.

In a recent Florida District Court of Appeals decision, the court stated that even security measures proven to be inadequate and warranting compensatory liability may suffice to ward off a claim for punitive damages (Ten Associates v. Brunsen, 492 So.2d 1149 (1986)). Predicated on this significant but little known Florida appellate decision, a business demonstrating a concern for safety and public well-being may be able to insulate itself from potentially large punitive damage awards.

Being security conscious is more important now for the business operator than perhaps at any time previously for two reasons. First, the frequency and size of punitive damage awards has greatly increased during the past 20 years; and second, the nation's rate of violent crime has shown a 45 percent increase since 1977. For these reasons, the potential liability exposure of business concerns has been significantly enhanced in recent years.

Businesses inviting the public onto their premises have a duty of care that includes providing a level of safety and security to persons who enter with legitimate reasons. The 1866 English landmark case of Indermaur v. Dames set the precedent that business enterprises owe invitees (business guests) an affirmative duty to provide protection from both known dangers and risks discoverable through reasonable care. Although businesses are not required to be absolute insurers of invitee safety, the law does impose on businesses a duty to exercise due care to ensure their premises are maintained in a safe condition.

Driven by considerations of pragmatism and public policy, the courts have concluded that commercial enterprises are expected to budget in advance for crime prevention costs and to distribute such expenditures efficiently among their business guests. The courts have shown a strong preference for saddling businesses, rather than patrons, with the financial losses incurred as a result of criminal attacks occuring on a business enterprise's property.

In a prominent case on this topic, the California Third Appellate Court stated: "It is only fair and equitable that the reasonable costs of protecting store patrons from criminal activity be borne by the owners, the operators, and indirectly by the patrons of convenience stores and not by the community at large. It is also not unfair that patrons pay a few cents more for items they purchase from such a store and gain the assurance of reasonable protection against criminal activity while shopping there, rather than allow the emotional and physical burden of a criminal attack to fall on the store patron who inadvertently finds himself or herself in the middle of a robbery invited by the store's failure to provide minimal crime deterrence measures." (Cohen v. Southland Corp., 157 Cal. App. 3rd 130, 143 (1948).)

Courts weigh the expectations of the parties and their abilities to assume additional burdens when deciding that the business enterprises and not consumers should be assigned the duty of taking reasonable precautions to prevent onpremises criminal attacks. In looking at the expectations of each, the courts conclude that buyers expect more of sellers than do sellers of buyers. As a result, the burden of providing security precautions is relegated legally to business because it is deemed the more capable party in marshalling resources to deter and guard against crime on the premises. As stated in one article on the subject: "While the patron can prevent crime by not going out at night, the price of staying home is high not only for him but also for society in general. While the patron holds just one expensive option, staying at home, the landowner holds many options, ranging from installing better lighting, fences, and guard service, to even varying hours of operation. All of these options should be less expensive and much more effective in deterring crime than the patron's sole choice of staying home." (Arizona Law Review, 747,748 (1979).)

Courts apply this same approach in cases where tenants in urban apartment complexes fall victim to on-premises violent crimes. The landlords are considered the main beneficiary of the landlord/tenant relationship and are viewed by the tribunals as better equipped in terms of expertise and resources to prevent harm from occuring.

Two groundbreaking tenants' rights cases, Kline v. 1500 Massachusetts Avenue Apartment Corporation and Javins v. First National Realty Corporation, made reference to an innkeeper's responsibility of protecting overnight guests. The special relationship between an innkeeper and the inn's guests has long been recognized by common-law courts. Vestiges of that special relationship can be seen through even a cursory review of the case law. Often, the courts hold that hotels owe their guests a duty higher than ordinary or reasonable care. Even in states not specifically requiring a higher than ordinary duty of care, there can be an affirmative duty on the part of the innkeeper to protect guests. The Restatement of Torts (second edition) equates the innkeeper/guest relationship with other special, legal relationships such as employer/employee, common carrier/passenger, and property owner/invitee.

In Banks v. Hyatt, a suit brought by the estate of a murdered hotel guest, the Louisiana Supreme Court cited the Kline case. Wanting to expand the duties of landlords, the Kline court argued that innkeepers were similar to landlords and should be held to the same affirmative duty to protect those in their care. Relying on the Kline decision, the Louisiana high court held in Banks that innkeepers should take measures of protection within their power and capacity to take and those that can reasonably be expected to mitigate the risk of criminal attacks by intruders. The Louisiana court also announced in the Banks decision that an innkeeper has a duty to protect those parts of its premises that are not periodically patrolled and inspected by the police.

As a result of this affirmative duty and the requirement of a higher than ordinary degree of care, the defendant in the Banks case was found to be negligent and liable for failing to prevent the fatal shooting of a guest, who was on a public sidewalk immediately outside the hotel entrance but beyond the hotel's property line. The court was unwilling to let the four-foot distance between the hotel entrance and the location of the attack be a bar to liability. In a statement reminiscent of the reasoning in the landlord/tenant cases, the court stated: "If an innkeeper has sufficient control of property adjacent to his premises so that he is capable of taking reasonable actions to reduce the risk of injury to guests present on the adjacent property, the innkeeper should not be immune from liability when his failure to take such actions results in an injury to a guest. As between innkeeper and guest, the innkeeper is the only one in a position to take the reasonably necessary acts to guard against the predictable risk of assaults. He is not an insurer, but is obligated to take reasonable steps to minimize the risk to his guests within his sphere of control." (Banks v. Hyatt, 722 F.2d 214, 226 (1984).)

THE LEGAL TENET THAT PROPERTY owners and possessors have a duty to exercise reasonable care or higher than ordinary care in preventing foreseeable dangers from harming their business guests is well established. As a result, foreseeability often becomes the pivotal issue in determining liability. Accordingly, judges and juries weigh evidence that might indicate whether a business owner knew or should have known that customers could be harmed by criminal acts.

In a 1979 suit against Holiday Inns, the Wisconsin Supreme Court found that the defendant hotel had a duty to provide guests with security commensurate with the circumstances, announcing: "In our mobile society, travelers carry sums of money because of necessity and the problems caused by the lack of adequate identification for cashing checks in areas away from home. Thus, innkeepers should foresee that necessarily large amounts of monies and credit cards are carried by their guests and consequently increased security is required in these days of rapidly increasingly assaultive crimes." (Peters v. Holiday Inns, Inc., 89 Wis. 2d 115, 278. NW .2d 208, 211 (1979).)

Whether prior incidents of criminal attacks have taken place on a defendant's premises is often a key issue at trial, though prior attacks of a similar nature are no longer deemed to be imperative for foreseeability to exist. The Kline case based foreseeability on "notice of repeated criminal assaults and robberies on premise areas under managerial control."

In the years since the Kline ruling, most courts have eased the plaintiff's burden of proving foreseeability by acknowledging its existence even in the absence of identical or similar crimes previously occurring on the property. Even a brief review of the trend in case law reveals that the courts have chipped away at and diluted the doctrine of foreseeability and as a result have reduced obstacles to receiving large recoveries and judgments against business establishments.

A California appellate court ruled that if a specific convenience store had but one prior incident, foreseeability would still exist because the parent firm knew its stores were generally susceptible to robberies Cohen v. Southland Corp. In Feld v. Merriam, 416 A.2d 225 (1983), a Pennsylvania court found that a landlord's knowledge of previous crimes less serious than an assault sufficiently satisfied the foreseeability test. Another Pennsylvania decision held that prior nonviolent automobile thefts should have put a shopping center on notice that parking lot assaults were foreseeable (Morgan v. Bucks Assoc., 428 F.Supp. 546 (1977)). New Jersey's Supreme Court found that the high crime rate in the immediate neighborhood was a factor in determining whether a criminal attack on an apartment tenant was foreseeable (Trentacost v. Brussel, 412 A.2d (1980)).

Significantly, some courts acknowledge foreseeability even when plaintiffs do not allege any previous criminal conduct. The mere presence of panhandlers and street people has been used to establish the foreseeability of subsequent violent attacks (Mitchell v. Pearson Enterprises, 697 P.2d 240 (1985)). A ruling by California's Supreme Court in a case involving a physician assaulted in a hospital parking lot located in a high crime area explains why many courts have abandoned the standard of prior occurrences of criminal attacks as a test in establishing foreseeability. The California high court espoused the view that such a requirement would be "inherently unfair to the first person injured." (Isaacs v. Huntington Memorial Hospital, 204 Cal. Rptr. 765 (1984)).

COMPENSATORY DAMAGES AND punitive damages represent two categories of awards for which injured persons can sue. Compensatory awards are designed to compensate the injured party for the loss caused by the wrong or injury and may include reimbursement for medical bills, lost wages, pain and suffering, emotional injuries, and physical impairments. Punitive or exemplary damages are damages other than compensatory that may be awarded to punish the defendant for outrageous conduct and to deter similar malfeasance in the future. Following the common-law tradition, most courts in the United States recognize and allow punitive damages to be imposed as a means of punishment and deterrence. In recent years US courts have encouraged a more liberal use of punitive damages than have other common-law countries.

An article on punitive damages in the May 1980 issue of Insurance Law Journal attributes the increase in punitive damage awards to a decrease in the legal standards plaintiffs are required to satisfy to qualify for such damages. In earlier years, punitive damages were only recoverable if fraud, malice, or oppression was proven. As part of a trend in making punitive damages easier to obtain, the highest courts in Indiana, Oregon, and Arizona have ruled that proof of gross negligence will justify the imposition of punitive damages. (Bud Wolf Chevrolet, Inc. v. Robertson 519 N.E.2d 135 (1988).)

As a matter of public policy, a number of states totally bar insurance companies from paying for punitive damages levied against their insureds; other jurisdictions' coverage for punitive damages arises solely out of vicarious liability. Eight states prohibit insurance coverage of punitive damages in all circumstances: California, Colorado, Kansas, Maine, Minnesota, New York, North Dakota, and Ohio. Six states limit insurance coverage of punitive awards to defendants vicariously liable for the acts of others: Florida, Illinois, Indiana, New Jersey, Oklahoma, and Pennsylvania.

Twenty-two jurisdictions recognize the right of insurance companies to provide coverage for punitive damages without restriction: Alabama, Arizona, Arkansas, Connecticut, Delaware, District of Columbia, Georgia, Idaho, Iowa, Kentucky, Maryland, Mississippi, New Hampshire, New Mexico, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Vermont, West Virginia, and Wisconsin. Nine states have not yet formulated a policy on the insurability of punitive damages: Alaska, Hawaii, Missouri, Montana, Nevada, North Carolina, South Dakota, Utah, and Wyoming. Seven jurisdictions do not recognize exemplary damages as a form of recovery: Louisiana, Massachusetts, Michigan, Nebraska, Puerto Rico, Virginia, and Washington.

States interdicting insurance payments for punitive awards do so to inflict maximum punishment on the offending party and to deter such conduct in the future. These jurisdictions reason that the economic pain of being deprived of insurance coverage for a punitive verdict would be relieved and the deterrence element eliminated if an insurance carrier were authorized to pay the defendant's fine.

The leading case holding that insurance coverage of punitive damages is a violation of public policy is Northwestern National Casualty Co. v. McNulty, 307 F.2d 432 (1962). This landmark decision held that permitting an insurance company to pay for the punitive damages assessed against a drunk driver would run counter to the twin goals of punishment and deterrence. The defendant's 80-mile-per-hour meandering driving pattern resulted in an innocent motorist's being permanently brain damaged. The McNulty court decided that when persons are entitled to insure themselves against the monetary punishment imposed by punitive damages, they gain freedom to behave in ways counter to societal interests and become immune to public sanctions.

The federal appellate court went further by stating that not only would the defendant walk away from his misconduct if insurance paid for exemplary damages but that the financial burden of his treacherous act would wrongly fall on society. The McNulty court held "that the burden would ultimately come to rest not on the insurance companies but on the public, since the added liability to insurance companies would be passed along to the premium payers. Society would be punishing itself for the wrong committed by the insured." The court underpinned this philosophy by forbidding the transfer of responsibility for the payment of punitive damages.

The six states not completely banning insurance coverage of punitive damages permit coverage only in those circumstances where the insureds have been held vicariously liable for the acts or decisions of employees. An example of this is Sterling Insurance Co. v. Hughes, 187 So.2d 898 (1966), a Florida case in which Sterling Insurance brought suit to avoid payment for the punitive damages assessed against a hotel it had insured. In an earlier case involving the insured, a jury determined the hotel was liable for punitive damages stemming from an assault and battery committed by an employee. Determining if the employee's acts were the acts of the hotel itself became the central issue in the litigation. Since "there was no evidence to indicate that the insured gave him [the employee] authority to intentionally inflict the injuries," the court concluded that public policy was not encroached on by allowing insurance coverage for punitive damages under these circumstances.

The outcome of a Hughes-type case might have been different if a patron injured in a third-party criminal attack alleged and proved the defendant's employees acted improperly in ignoring security threats and in failing to install any safety procedures. If the person making (or failing to make) security-related decisions is at the managerial level or is a principal in the firm and is in a jurisdiction that limits coverage of vicarious liability, then punitive damages would not be permitted to be passed on to the insurance carrier. Instead, the punitive fine would be borne by the defendant alone. (Barlow v. International Harvester Co., 522 P2d 898 (1974).)

In states limiting insurance coverage of punitive damage awards to circumstances involving vicarious liability, employers may only insure themselves for the wrongful acts of employees and not those of high-level executives or the company itself. Many business executives are unaware that punitive damages are not insurable in certain states. As a result, they do not comprehend the potentially devastating magnitude of their company's financial exposure in punitive damage cases.

Punitive damages generally exceed the amount of a compensatory award; often, the punitive damages represent a multiple of the compensatory remedy. Juries and judges are required by law to consider the defendant's financial condition when determining the size of a punitive damage award, as courts set the amount of the award based on the defendant's wealth. Because these awards are expressly designed to inflict monetary pain, a minimal fine against a wealthy defendant will likely fail to achieve the punishment aims of exemplary damages.

In the states limiting or completely prohibiting insurance coverage of punitive damages, businesses found liable have the unpleasant choice of paying for these verdicts by resorting to their own bank accounts, selling assets, borrowing money, or facing bankruptcy. Even mammoth companies can be crippled as a result of punitive damages. For example, A. H. Robbins Company, the pharmaceutical producer, was forced to file for financial reorganization under Chapter 11 of the US bankruptcy code as a result of damage awards and out-of-court settlements totaling $530 million. To compound its financial plight, A. H. Robbins's insurance carrier, claiming it made payments in excess of insurance policy limits, brought a $56 million suit against the firm.

The pharmaceutical manufacturer earned record annual operating profits of $144 million in 1985. Nevertheless, the company was forced to file for bankruptcy to protect itself from damage claims and to insulate remaining assets. The company had manufactured the Dalkon Shield intrauterine device before halting its production in the 1970s. In 1975, the first Dalkon Shield plaintiff was awarded $75,000 in punitive damages and $10,000 in compensatory damages. Later verdicts in other suits reached 100 times that figure.

In Brown v. Maxey (369 N.W.2d 677, 1985), Wisconsin's Supreme Court affirmed a $200,000 punitive judgment against the owner of a low-income housing complex, with another $52,185 awarded in compensatory damages. The action was brought by a tenant who was badly burned in a fire that had suspicious origins. The Brown court held that evidence of uncorrected and serious security problems coupled with a history of criminal acts on the premises permitted the jury to determine that the building owner exhibited conduct in reckless disregard of the plaintiff's rights and safety.

Evidence showed that vandals and youths frequently gained access to the apartment building, and six fires had been set in the eight months prior to Brown's injury. Door locks were consistently inoperative due to vandalism, and a lack of jimmy plates enabled almost anyone to enter the building easily. The plaintiff's expert witness testified that building owner Louis Maxey could have reduced the risk of set fires through the use of security guards, better locks, and fire safety equipment.

In upholding the punitive damages award, the Wisconsin Supreme Court expressed the view that "given Maxey's knowledge with respect to the security problem and the history of fires at Apollo Village and his conscious refusal to reduce the risk of fires . . . it is reasonable to conclude that Maxey proceeded with a reckless and conscious disregard of the grave consequences involved with such conduct. Maxey's conduct, under these circumstances, was `outrageous'."

The court showed little sympathy in ruling against the building owner's contention that the amount of the punitive damage award was excessively high. Although punitive damages were nearly four times the amount of the compensatory award, the court concluded that the penalty served the purpose of punishment and deterrence. The court indicated the size of the punitive award did not shock its conscience when Maxey's financial status and his indifferent attitude toward tenant safety were considered.

THE ATTEMPT TO SHOW WHETHER a business enterprise provided sufficient security precautions often leads to the introduction of complex evidence and expensive, sophisticated litigation. One frequently cited ruling--Peters v. Holiday Inns, Inc.--held that an innkeeper's standard of care in providing security varies according to the unique circumstances and location of the hotel.

The following factors were outlined by the court in its determination of whether a proprietor exercised ordinary care in providing adequate security:

* industry standards

* the community crime rate

* the nature and frequency of prior criminal activity on and near the defendant's premises

* the presence of suspicious persons

* individual security problems caused by building and parking lot design In response to these factors, commercial enterprises may have a duty to provide security precautions. The absence of three security measures is frequently cited by the courts when determining a business's liability: adequate exterior lighting, fences surrounding the perimeter of the property, and private security guards.

In the case of Urbano v. Days Inn of America, 295 S.E.2d 240 (1982), a North Carolina court held a hotel liable for damages suffered by a guest who was seriously injured in a parking lot assault. The court found that the hotel had failed to use fences, had inadequate exterior lighting, had not retained private security patrols, and had generally failed to take reasonable security precautions.

An absence of private security officers has been relied on by a number of courts in holding businesses liable when their premises have been the sites of previous attacks on customers. Courts have also ruled that in certain situations businesses are negligent in relying solely on municipal police forces to patrol their premises periodically. The court in the Kline tenant rights case stated, "We note that in the fight against crime the police are not expected to do it all; every segment of society has obligations to aid in law enforcement and to minimize the opportunities for crime."

The article "Are You Liable?" in the July 1986 issue of Security Management concurs that courts may view an absence of security patrols as a conscious decision by the property possessor "to sacrifice the safety of patrons in favor of profitability." In deciding whether guards should have been used, the article points out that courts also consider the practices of similar businesses in the defendant's geographical area.

WHEN COMMERCIAL PROPERTY holders are not indifferent toward an on-premises crime problem but are instead negligent, courts may be persuaded not to consider punitive damages as a remedy. The undertaking of affirmative steps by a business enterprise, even those later shown to be inadequate or insufficient, has limited liability to compensatory damages.

In the Brunsen case, a Florida appellate court overturned a verdict for punitive damages because the defendant landlord made an effort, albeit a negligent one, to control on-premises crime. This little-noted case has potentially favorable significance to businesses, security directors, and the private security industry. In Brunsen, tenants in a crime-riddled apartment complex sued the landlord after their daughter was abducted, taken into one of the many unlocked and unboarded vacant units, and raped.

In the trial court, it was determined the landlord knew that the unlocked, vacant apartments frequently attracted criminals. The lower court further found that the landlord was negligent in failing to secure the units, and the jury awarded the rape victim both compensatory and punitive damages. On appeal, the Florida appellate tribunal ruled that despite the negligent conduct of failing to lock vacant apartments, the presence of a security guard, even though untrained, showed a lack of willful or wanton conduct on the part of the landlord. Notwithstanding the lower court's finding of the landlord's negligent conduct, the appellate court held that the attempts (though unsuccessful) to provide security insulated the landlord from a judgment for punitive damages.

In reversing the punitive damage award, the Florida court stated that to support recovery of exemplary damages, more than gross negligence must be found, and the negligence required to sustain an award of punitive damages is tantamount to that required to underpin a conviction for manslaughter. The negligence "must be of a gross and flagrant character, showing recklessdisregard of human life, or of the safety of persons disposed to its dangerous effects, or that there is entire want of care which would raise the presumption of a conscious indifference to consequences, or which shows wantonness or recklessness, or a grossly careless disregard of the safety and welfare of the public, or that reckless indifference to the rights of others which is equivalent to an intentional violation of them." (Diaz v. Sears, Roebuck & Co., 473 So.2d 932, 934-5 (1985).)

Individual retailers in shopping centers have begun supplementing security measures provided by the mall management. Other firms, which independently could not support the cost of a guard service, have been banding together to share expenses with neighboring establishments. To deter criminals from attacking patrons, businesses need to analyze the risk posed to their patrons. By conducting a vulnerability and threat analysis, business owners are able to become better aware of the nature and frequency of crimes committed on their premises, in their vicinity, and among similar business operations. The information unveiled by such an analysis could also forecast the type of evidence prospective plaintiffs could introduce to prove foreseeability.

In addition to being aware of incidents occurring on their premises, businesses also need to become knowledgeable of crime trends confronting enterprises similar to their own. A plaintiff's lawyer can successfully claim that commercial property possessors have a duty to be aware of industry trends and are responsible for responding in an appropriate fashion.

Many police departments can make computer printouts available of criminal incidents occurring within a geographical area during previous years. This information can reveal important trends, such as changes in the frequency and levels of violence.

Although neighborhood crime reports are valuable in helping decision makers determine the types of criminal acts that customers are likely to be susceptible to, they do have an important limitation. Police department printouts only include data on incidents that the police are aware of. Less than half of all violent crimes are ever reported to the police. As a result, courts also consider the reputation of the neighborhood in the community when deciding if a criminal attack was foreseeable.

It is well settled by case law that business enterprises have a duty to exercise due care and to take reasonable precautions to safeguard patrons from criminal attacks. Depending on the circumstances, a failure to satisfy this duty can lead to an award of punitive damages. In certain jurisdictions, insurance coverage for exemplary damages is interdicted by public policy and case law. In many jurisdictions positive action on the part of a business toward providing security, even if the security measures are found to be inadequate, can serve to insulate the business from an award of exemplary damages.

Reasonable security precautions can be expensive to implement and properly maintain. However, the costs of such programs may be minimal when measured against the potential of large jury verdicts that assess punitive damages on the basis of the injury sustained, the financial status of the defendant, and whether the business enterprise attempted to provide security. Punitive damages can inflict serious and, in some cases, fatal economic blows to even thriving businesses.

Andrew J. Anthony is an attorney practicing in Coral Gables, FL. Frederick F. Thornburg, vice president for Institutional Advancement and legal counsel for Saint Thomas of Villanova University, was formerly executive vice president of The Wackenhut Corporation. The authors wish to thank Loring Spolter for his assistance in developing this article.
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Author:Anthony, Andrew J.; Thornburg, Frederick F.
Publication:Security Management
Date:Feb 1, 1989
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