When Banco Bradesco, Brazil's largest private bank in terms of assets, was recently ordered by a judge in Sao Paulo to pay compensation equaling $450,000 to a family of a man murdered while withdrawing money from one of their ATMs, the action caused bankers to sit up and take notice.
It was less the amount of the judgment that got bankers' attention and more the specter of a troubling precedent being established by the case. Would banks in the future be held responsible for attacks on all customers at their ATMs? Questions were also raised by the case about whether banks are taking enough precautions to safeguard their customers using their ATMs.
In October 1995, Edson Olveira, was fatally shot by two robbers while withdrawing money from a Bradesco ATM. In April, Judge Ana Cristina Ramos of the Santo Andr court in Sao Paulo found Bradesco liable for Olveira's death and ordered the bank to pay his family compensation for "moral and material damages."
Bradesco, the judge said, lacked minimum security because the robbers entered the bank's ATM kiosk through a broken door. Ramos added that civil responsibility obligates banks to monitor their ATMs to ensure customer security.
Bradesco, which declined comment for this article, alleged in court that by refusing to give in to the robbers Olveira created a case of "force majure" or violence that was uncontrollable. The Cidade de Deus-based bank is appealing the judge's decision.
Barry Glazer, an attorney at Dorsey & Whitney LLP, a corporate and commercial law firm with offices in the United States, Europe and Asia, finds the Bradesco decision surprising because banks have generally not been held responsible for assaults at ATMs.
"As a general rule it would be pushing it to say banks are liable for any attack on their customers while they are using an ATM," the attorney says. "The general principle, if there is one, is that there is a duty of care on the part of the bank or the ATM owner to provide some security measures where the risk of attack is foreseeable."
He Adds, "And what does that mean? Some courts have held that the bank has to have had repeated incidents of attacks at the ATM and the bank has to be aware of the (security) problem."
The Olveira assault was not the first incident at one of Bradesco's ATMs. In September 1995, the same year Olveira was murdered, another customer was killed after breaking his ATM card to avoid being robbed.
Sparking a legal flurry?
Perhaps most unsettling for banks is not the amount of the compensation, but the threat of a legal precedent unleashing copycat cases. Brazilian courts already have before them some 100 cases filed by plaintiffs against banks claiming damages after assaults at ATMs, according to Ademar Gomes, the president of Acrimesp (The Association of the Criminal Attorneys of the State of Sao Paulo).
Gomes, an attorney, says the Olveira case was the first where a bank was held liable for an assault occurring at an ATM. Banks, he says, should be obligated to provide security to prevent violent crime on clients using their ATMs.
The Brazilian decision, Glazer says, could lead to the seeking of reparations for victims of ATM crime in countries other than Brazil.
"That's only human behavior," he says. "You see somebody getting an award and it gives you the same idea to make the claim."
Mark Coons, chief executive officer of American Special Risk LLC, a Charlotte, NC-based insurance firm, says that U.S. courts could award significantly more to a plaintiff than the amount awarded in the Brazilian case.
"You could have a situation where someone sues for several million dollars in the U.S. and that could be quite harmful to a bank," Coons says. "I don't think you will see it on a regular basis, but, if you get it here or there, it can add up quite quickly."
Another trend that could lead to increasing ATM security suits is the proliferation of ATMs in remote locations.
"When you are talking about deploying an ATM in a remote location the type of security infrastructure, such as guards and remote cameras, is unlikely to be available in all cases," Glazer says.
"Probably what's happening in South America right now is similar to what happened in the U.S. going back five to 10 years," Coons says. "A number of U.S. states have now passed ATM safety acts-New York and California among them- where the bank regulators really stepped in and tried to say that people are getting injured while using ATMs, and we need to have safety standards that apply to all banks. If you get hundreds of lawsuits arising from the Bradesco case, I think that regulators in Brazil, Chile or wherever might start looking into this type of thing."
To protect themselves, Coons recommends banks have a general liability policy with some excess umbrella coverage.
Most U.S. banks have appropriate coverage and security, he says, so American Special Risk chiefly insures non-bank, ATM operators.
"We try to work with a bank or an ATM company to help them control their risk, because in the long run if they have losses there will be either an unavailability of insurance or costs will be so prohibitive they will not want to purchase it," he says.
American Special Risk offers some common-sense recommendations, such as placing ATMs in well-lighted areas, but basic risk management tools are also necessary.
Legal counsel is also important and Glazer says law firms can help banks by anticipating what types of claims might arise, by interpreting local regulations, and by ensuring that the bank is not negligent. Despite these precautions, the nature and rate of ATM crime worldwide remains a subject with a multitude of unknowns.
Firms with financial clients, such as Dorsey & Whitney, are conducting research on ATM crime and the ATM Industry Association (www.atmiaeurope.com), a global non-profit organization dedicated to the advancement and proliferation of ATMs, organized a June 1 conference on ATM security in London. The Sioux Falls, SD-based alliance will bring together police, forensic science services, ATM manufacturers, network operators and security technology producers to develop a coordinated, industry-wide strategy, according to Michael Lee, executive director, international, for ATMIA Europe.The industry, together with police and the community, can help reduce ATM crime. These efforts should involve the development of a coordinated strategy with quick response planning, especially in areas targeted by organized gangs, he says, adding that any strategies should be spread by widespread marketing of practical tips allowing those deploying ATMs to enhance their security through the use of smart technology and deterrents, such as cash dye-staining and surveillance monitoring of stolen cash from ATMs.
There should also be a public education program to teach ATM users the practical steps to avoid becoming victims of ATM crime, he says.
While ATM owners are watching such cases as the one in Brazil, Coons says American Special Risk has so far mostly dealt with issues of property damage as opposed to human injury, or liability, cases.
Daniel Joelson is a freelance writer based in Santiago, Chile.