Investigators Liability

Reginald J. Montgomery

RJ Montgomery Associates

Allendale, New Jersey 

For many private investigators, talking about liability seems as meaningful as watching paint dry.  Some dismiss it out of hand, while others brush it off saying, “I have insurance.”  Most investigators came from law enforcement, military or other governmental backgrounds, where they were protected from personal liability.  But in the private sector, liability is a real issue – one that can dramatically affect each (and every) private investigator.

            Under the American legal system, any person can be sued for any reason.  There is technically a rule against frivolous lawsuits, but it is rarely imposed.  In fact, there are numerous examples of neighbors suing each other simply out of harassment.  But when litigation is turned on investigators, the tide changes.  Private investigators sell themselves, their skills, knowledge, contacts, expertise, and most importantly, their integrity.  And when that integrity is challenged, it costs time, effort, energy and money to defend.

            To protect themselves from liability many investigators purchase insurance.  But is that enough?  Actively choosing what services to offer, what clients to work for, and which of each to avoid will have a greater impact on liability than the presence or absence of insurance. This paper will explore the risks private investigators face, explore options for managing these risks, and provide recommendations for minimizing exposure. 

WHERE WE ARE TODAY

            Today private investigators are involved in almost all aspects of legal and business processes.  As the profession has grown and matured, professionals have replaced cowboys.  The retired part-timers, that once dominated the ranks, are now outnumbered by full-timers.

In the early 1900s only New York licensed investigators.  Today, over 40 states recognize private investigators are a specialized function and require various combinations of licensing, experience and continuing education.  The emergence of standards also brought about the liability for failing to meet those standards.  Then the privacy movement emerged, including criminal and civil penalties for invasion of privacy.

These factors all combine to put private investigators under increasing scrutiny.  In the past, issues of trespass or invasion of privacy were rarely mentioned.  Many investigators thought nothing of calling buddy to get them inside information.  But in the last 10 years the situation dramatically changed.  Investigators began being prosecuted.  First on the Federal level for IRS and Social Security records.  Then on the State level of DMV records.  Lately both Federal and State prosecutions have regularly occurred for violations of various privacy laws, involving criminal, driving, financial, and other records.

THE INVESTIGATIVE BUSINESS

It is a far cry from the days when Pinkerton and Burns could operate above the law in the 1880s.  Then readers were entranced by the exploits of Sherlock Holmes.  Later, people followed the hard charging actions of Mike Hammer and the incredible investigative powers of Perry Mason and his team.  But the Wild West has passed on into history.  Today, the successors to Pinkerton and Burns are guard services companies.  Private security functions are highly regulated and increasingly routine.   Successful private investigators proudly display credentials, not pistols; State licenses are seen in offices, not whiskey bottles.

            But even as the industry grew and matured, the core needs remained the same.  People still lie, cheat and steal.  Every day telephones in private investigators offices ring with tales of woe, claims abuse and demands for justice.  

So what does the ethical private investigator do?  It is possible to serve your clients without bending (and sometimes breaking) the law?  Are the rewards worth the risks in today’s environment?  What are the risks?  These questions can have very different answers depending on the specific services offered and clients served.      

SERVICE RISKS

            Investigative services can involve specific inherent risks and different services, locations and specialties can greatly increase or decrease the overall risk level.  Services that involve no contact (such as document retrieval) generally have the lowest level of risk.  Next are services that involve contact with witnesses or other non-confrontational parties (friendly interviews, locating witnesses, etc.)  The highest risks are those that directly involve parties (surveillance, process service, domestic matters) and those that involve sensitive or borderline legal areas, (background investigations, asset searches).

These risks are enhanced depending on your specific service.  For example serving a business is generally very low risk, while personal service can be very high risk.  Covert surveillance in a high crime area is considerable higher risk than open surveillance of a loading dock.  Further these risks are affected by your actions as well.  Carrying a weapon dramatically increases the risk level (though it may seem safer).

Providing higher risk services is often part of the job.  Some investigators, out of a sense of competition or ego, try to push the limits; climbing trees, crawling under fences, hiding in bayous, all to get the best possible film.  When they do, they may break the law and put themselves in potential jeopardy.    Others may decide that the risk required for certain a service is no longer worthwhile.  The key is in actively making an informed choice.        

CLIENT RISKS

            Similarly serving some clients is riskier than others.  Investigators who work for corporations are primarily involved in litigation (or potential litigation) matters.  Thus the main risk is being embroiled in the litigation.  The more important your role, the more likely you will be named as a party in the case.  On the other hand, investigators who work for lawyer/law firms, face different risks.  The possibility of litigation is much lower, as an attorney’s agent is often protected, but the risk of violating legal ethics rules (many of which are unknown to investigators) or the risk of not getting paid can increase.  While investigators who work for private persons run the highest risks, potentially involving themselves in the improper use of information, charges of conspiracy, and the greatly increased risk of non-payment.

            Choosing to work or not work for certain types of clients greatly impacts a private investigator’s risk levels.  The above examples may seem either common sense or farfetched, but they are all based on real life examples from the past 5 years.  It is important to remember that the entire driver’s privacy protection movement began when a private investigator sold driver’s license information to a man who then killed an actress.   For a simple $50 case, that private investigator impacted every other private investigator in the United States. 

RISK MANAGEMENT TECHNIQUES

            Since each private investigator’s clients, services, risks, and tolerances are different, it is impossible to simply spell out a global solution.  Rather than guess as to the proper balance, private investigators should utilize risk management techniques to find the best solution for their situation.  Risk management is based on a process of controlling risk analytically and its basic formula is:  RISK==Acceptance, Avoidance, Identification, Measurement, Mitigation and   Transfer

 ?         Identification

            Determine what risks you face.  These can be caused by location (flood, hurricane, tornado, rebellion, etc.), services (surveillance, repossession, background checks, domestic, etc.), and/or clients (corporations, insurance companies, lawyers, individuals).   They can also be caused by your background, history, skills, training and/or experience.  The purpose of this exercise is to ensure that you are aware of the specific risks your business experiences.

?          Measurement

            Next consider the impact of these risks.  Some are more likely than others.  Some are more devastating than others.  Since most private investigators function as small businesses, be sure to address the impact of these events of your family.  Are there other income sources?  What would happen to your business if you were sued?  Arrested?  Described negatively in the press?

 ?         Acceptance

            There are some risks that you are willing to accept.  For example, there is a possibility that a meteorite might hit you.  While small, this would certainly be significant.  On the other hand there is really nothing that can be done about it, so the risk must be accepted.  Similarly, most private investigators are willing to accept the risks of political instability in the country they live it and other types of risks.  File in this category any identified risk that you are willing to accept unchanged.

?          Avoidance

            There are other risks that you are never willing to accept.  This may require that you limit your services, location, client types or other factors.  Many investigators will not take a case outside of their comfort zone.  That might mean only working local cases, or not taking surveillance cases, or turning down interviews of non-English speakers.  File in this category any risks that you are unwilling to accept.

?          Mitigation

            For those risks that you are neither willing to accept, nor able to avoid, use mitigation techniques to reduce your exposure.  For example if you take cases from individuals, you can reduce your risk of not getting paid by executing a written contract or requiring a deposit payment.  Other risks can be mitigated by thorough documentation, use of disclaimers, obtaining a signed confirmation letter.  Use mitigation techniques to reduce risks to an acceptable level.

 ?         Transfer

            Finally, for those risks that you must take and cannot otherwise mitigate, consider transferring them to another party.  For example purchase E&O insurance or execute a hold harmless agreement to move the risk of litigation to your insurance company or client.  Similarly, formalizing your business structure by creating a partnership or corporation will shield your personal liability.  Remember that all transfer activities involve costs, paying for an insurance policy or hiring a lawyer to create a corporation for example.  But for those costs you receive a layer of protection, wherein another party to takes part or all of the risk for you. 

STRATEGIES FOR SUCCESS

            This brief review of investigative service risks, client risks and risk management techniques provides a foundation for increasing the success of your business.  Follow this process to determine your risk tolerance.  Look at your situation and measure your exposure.  By focusing on these areas, you can use this risk assessment exercise to not only reduce your exposure, but also increase your profitability. 

1.                  What clients do you serve?  Where?

2.                  Do you have employees? How are they controlled?

3.                  What services do you provide? Why?

4.                  What are your least favorite services? Can you eliminate them?

5.                  What are your least profitable services? Can you eliminate them?”

6.                  What are your highest risk services? Can you eliminate them?

7.                  Have you eliminated any unnecessary risks?

8.                  Have you mitigated any remaining risks?

9.                  Have you transferred all catastrophic risks?

            To be more successful, give your business a physical.  Take a good look at the service/client/risk picture and make sure that you are comfortable with it.  Identify any problem areas, poor profitability, high exposure, changing client demand, etc.  Make active decisions about your risks – it does not matter what another investigator’s tolerance is; only what your tolerance is.  The time to find holes in your liability protection is before the other side finds them for you.

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