Insuring Your Business: Small Business Owners' Guide to Insurance

A person cannot prevail in a liability lawsuit against your business or you personally unless he or she can convince the judge, jury or other adjudicator that you breached your legal duty to that person. Examples of such duties include:

• Making a reasonable effort to maintain a safe environment for the public
• Refraining from slander
• Warning about an unsafe condition or product
• Investigating an employee’s complaint of civil rights discrimination

In general, to reduce liability risks, you must behave lawfully and with demonstrable responsibility for the welfare of third parties—a group that includes your clients or customers, competitors and the general public. Additionally, you must obey a variety of civil rights laws and other laws that give rights to your employees (if you meet the criteria of a covered business).

If you can provide evidence that you took your responsibility seriously and made reasonable efforts to prevent harm to others, you are much less likely to be found liable. Evidence can be in a variety of forms, depending on the nature of the liability risk. A few examples are:

• Copies of communications with your customers or employees about safety and risk
• Records of your efforts to verify that someone you hired was not a risk to others
• Testimony that you provided warning signs or other warning signals regarding a hazardous condition on your property
• Evidence from other professionals in your field that the decisions you made and actions you took were consistent with acceptable professional standards
• Records that your equipment was regularly serviced by knowledgeable technicians

Notice that in most of these examples, some form of written record is involved. Documenting your efforts to behave lawfully can be vital to proving that you are not liable. 

For almost any type of venture, you may find extensive and specific information on reducing liability risk exposures from your insurance agent and insurance company, trade association and the Internet. Briefly discussed here are some areas of concern that apply to many types of business. They include:

• Slip and Fall Accidents
   
• Employment Practices Liability
   
• Hiring Practices and Liability Avoidance

Slip and Fall Accidents – These are one of the most common liability risks. Thousands of people are injured every year—some very seriously—in slip and fall accidents on business premises.

Employee training is critical to reducing your slip and fall loss exposure. All employees who are likely to be around third parties on your premises should be trained about what to do should someone suffer a fall. Medical care should be quickly provided to the injured person even if that means calling an ambulance. People who feel they were treated callously or indifferently are more likely to sue.

Elimination of slip and fall hazards should be a periodic scheduled activity. It may be helpful to use  a checklist for this. Considerations for indoor areas include:

• Lighting:  All areas should be adequately lighted, including hallways and stairs.
• Exits:  Exits should be well marked, well lighted and clear of obstacles.  
• Stairs:  Handrails, steps and landings should be in good condition. Stair treads should be constructed of uniform height and width.  
• Housekeeping:  General housekeeping should be maintained and storage areas kept neat.
• Carpeting:  Carpeting should be tight and smooth.
• Floors:  Any changes in floor level should be clearly marked.
• Doormats:  Doormats should be flat, slip resistant, cleaned and checked regularly in bad weather.
• Spills:  There should be an effective procedure to assure that all spills are immediately cleaned up.

Considerations for outdoor areas include:

• Walkways:  Walkways should be kept in good condition.
• Lighting:  Lighting should be adequate.
• Parking lot:  Potholes, cracks or uneven areas should be repaired.
• Ice and snow:  There should be an effective procedure for assuring ice and snow are removed.

If there are treacherous areas—such as an uneven area of the sidewalk or a ripped carpet—consider marking them as such, using signs to warn people away and putting up barriers around them.

Employment Practices Liability – Federal law restricts employment decisions based on race and national origin, religion and creed, gender, age and disability. The restrictions on race, religion, gender and disability apply to businesses with 15 or more employees. The restrictions on age apply to businesses with 20 or more employees. An employee who feels discriminated against might sue making such charges as extreme emotional distress or wrongful termination. It is not a defense in such cases to say you didn’t know your actions were unlawful.

Larger employers typically provide formal training to management and employees on compliance with civil rights laws. As a smaller organization, you may feel you cannot  afford the time or money for such programs. There are many lower cost ways of carrying out this training. The Equal Employment Opportunity Commission (EEOC), for one, has low cost materials just for small businesses.

Hiring Practices and Liability Avoidance – Immature, careless and irresponsible people are much more likely to engage in risky behaviors—from reckless driving, to sexual harassment, to cutting corners on safety rules, to stealing from their employers. Similarly, people who have drug and alcohol addictions are liable to present a variety of workplace dangers. The first step in cutting down on your liability exposure is to be as careful and thorough as possible about whom you hire. Failure to use a reasonable screening process for new hires could even expose you to negligent hiring liability.

Clear job descriptions and workplace rules, disseminated to all employees and applied consistently and without favoritism, can be a tremendous help in minimizing the risk of unacceptable behavior. 

Managing Product Liability Risks

One of the most important ways to reduce potential product liability claims is keeping scrupulous records over the entire life

of a product, from design to obsolescence. In the event of a product liability lawsuit, those records would be very important to show that you behaved with reasonable concern for the welfare of others.

To reduce the possibility of harm, your products should be carefully designed and fully tested to specifically identify possible product hazards all along the way. Provide the customer with thorough and detailed information about the product and appropriate warnings. Identify products for purposes of prompt recall and have a recall plan.

Loss control experts also recommend that you investigate, follow-up and document all customer complaints, even those that seem minor. This demonstrates your concern about your customers and shows that you take your duty to be responsible for the safety of your product seriously. Complaints could provide an early warning of a possible safety problem or other risk. 

Risk Management For Information Technology

The greater the role that computers, the Internet and e-commerce play in your business, the more exposure you have to both property and liability risks involving information technology.

Digitally stored information is subject to many of the same risks as any other property (fire, flood, tornado, etc.) as well as special risks (computer viruses, malicious hackers, etc.). To prevent the loss of your accounts receivables, customer orders, client records or other such data, you should back up the data regularly and often and store the backup copies in a separate, secure location. Prevent data loss or corruption by viruses and hackers by keeping up-to-date antivirus software and firewalls on all your business computers.

If you rely on a Web site, either you or your Web site host should back up all critical material at least daily. To assure your Web site doesn’t go down, a real-time “mirror image” of all your site data should be maintained so that it can be transferred immediately if the original site crashes for any reason.

Digital technology also presents liability risks. You could be sued if there is a breach of your security and sensitive information about others is exposed or stolen. Make sure you use reputable vendors. You could face a lawsuit claiming that your Web site uses another’s copyrighted material or slanders someone. Some measures that could help control these risks include:

• Using a "security seal" from a reputable security certification organization to encrypt data
• Posting a formal privacy policy
• Having your legal counsel approve your Web site content and your privacy statement