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The security company will only be liable for any such loss or damage if it fails to carry out its duties correctly, and that failure causes or contributes to the loss or damage. Inevitably, customers – or as is often more likely their insurers – will look for someone to blame if something goes wrong. In such circumstances, the security company is going to find itself right in the firing line.

Unless the contract for the services in question limits the security company's liability, that liability (if any) may be equal to the full extent of the customer's loss, no matter how great that loss may be and regardless of how small the profit the security company is able to earn from the contract.

Therefore, it's usual practice for any reputable security contractor to include a provision in all of its contracts that limits the extent of its liability. However, if the security company's failure caused or contributed to the loss or damage, why shouldn't it be fully liable?

Surely, the security company should be held to account on such occasions?

Is it right that the law should allow anyone to escape the consequences of their actions?

What does the law allow?
Taking the last point first, what does the law actually allow? It doesn't permit anyone to limit or exclude their liability for death or personal injury caused by their negligence. Any contract clause which attempts to do so will be ineffective. It's important to make it clear that any provision which is intended to limit liability doesn't apply to death or personal injury.

What about loss or damage which isn't related to death or injury? Where a supplier of services to businesses attempts to limit or exclude its liabilities it cannot do so in its standard terms of business in relation to its own negligence, except to the extent that the exclusion or restriction "satisfies the requirement of reasonableness". What, though, does the law consider to be 'reasonable'?

This isn't so clear cut. It is something which is "fair and reasonable... having regard to the circumstances which were, or ought reasonably to have been known to... the parties when the contract was made". Factors which can be considered include the strength of the bargaining position of the parties relative to each other, whether the customer received an inducement to agree to the term and whether or not the customer knew of its existence.

In relation to limitation (rather than exclusion) clauses, it will also be relevant to consider what resources are available to the service provider to meet the given liability, and how far it's open to them to cover themselves by insurance.

That being the case, we can see that the law does allow businesses like security companies to limit their liability, even in their standard terms, so long as it's reasonable to do so. But why is it reasonable? Or, if we were to revert to my earlier question, why shouldn't the security company be held fully accountable?

Policy limits will be there
One answer to this question is that no matter how much liability insurance a security company buys, there will always be a policy limit. Any customer insisting on unlimited liability contracts is deluding themselves.

Once the policy limit is exhausted, the only recourse is to take the security company's own assets. This, too, is of course a limited sum. However, security companies usually want to limit their liability to a lot less than the full extent of their insurance... but why? The short answer is cost, but corporate and social responsibility are also important factors here.

Insurance companies are charging ever-higher premiums for all kinds of liability cover. In June last year, the Office of Fair Trading reported a rise in public liability premiums of between 30% and 40% during 2002. This is a cost which has to be passed on to security companies' customers.

Insurers have made it clear that they will either charge more to companies which don't contract responsibly with sensible limits of liability, or they may decline to provide cover at all. Without cover, what use is an unlimited liability contract to a customer whose property is either lost or destroyed?

Very high limits of liability aren't likely to be acceptable to a responsible service provider either – even if that limit falls within the extent of its insurance. The simple truth is that even if the security company is insured against a huge liability, its insurer may cancel future cover immediately in the event of such a claim, and is likely to demand a massive increase in premium to renew cover (or may simply refuse to renew at all).

Any security company which contracts without limiting its liability – or accepts very high limits of liability – is gambling with its own future. Customers should consider very carefully indeed whether or not it's in their best interests to entrust the security of their staff and property to such a company.

Security companies are not their customers' insurers. They don't charge more to protect a building just because that building or its contents are more valuable than another. Thus they don't receive greater reward in return for accepting greater risk as the insurers do.

Traditionally, security companies have sought limits of liability in the region of £250,000 to £1,000,000 in respect of damage to physical property, usually accompanied by a total exclusion of consequential loss (a liability against which it's not easy for a service provider to insure).

Of course, the higher the limit the higher the service charge, but this reflects the cost of risk transfer from the customer's property insurer to our liability insurer.

More often than not, customers are reluctant to agree to service providers' standard contract forms. Many – perhaps most – substantial contracts are now granted following a tender process. More and more frequently, that tender process is based on contract conditions proposed by the customer.

Such conditions rarely incorporate a limitation of liability, and invitations to tender frequently threaten disqualification from the tender process unless the customer's terms are accepted unequivocally. Security companies are then faced with the dilemma of whether or not to simply accept the customer's terms and contract in a way which risks their very existence, or tender in such a manner which risks disqualification from consideration.

Submitting qualified bids
Customers of security companies should expect that where they invite tenders based on terms which don't limit the contractor's liability, responsible contractors will only submit qualified bids.

Indeed, I'd argue that clients should question the integrity of any company which doesn't qualify its bid on this issue.

Enlightened contractors realise that any limitation of liability they propose must be reasonable in the context of the value of the contract, and the cost and availability of liability insurance over the longer term.

What they must not do is expect contractual clauses to relieve them of all liability for any wrongdoing, but should believe they'll help them keep the extent of that liability within a framework which can be afforded by the security company, its insurers and – ultimately – the entire customer base.