If you are running a business, it’s important to be aware of the common types of liability risks that your business faces. While some businesses are subject to greater amounts of risk than others, every type of business should ensure they are covered against risk. If you want to ensure that your company’s assets are protected, here are the most common types of commercial liability risk examples that your business should watch out for.
1. Commercial General Liability Risks
General liability risk covers a lot of areas. In fact, most businesses are required to have general liability insurance, especially those that have premises. General liability risk refers to things like negligent acts or omissions that result in bodily or property damage on-premises. For instance, if someone can be injured in the general course of business operations on-premises and even away from the company’s property. This includes the risk of accidents happening that involves a company’s staff member. General liability risk also includes things like injury or damage resulting from manufactured products or services of a company. Apart from that, it also covers the risk that a product distributed by a company can cause damage even if they are not the ones who manufactured it.
General liability risk also touches organizations like Universities. This is why some universities extend their insurance coverage to their students. However, students are only insured if they are engaged in approved activities that are part of their programs. They are also insured if they are representing their institutions in activities that lead to or contribute to a negligence claim against the university.
Here are some general liability risk examples faced by common types of businesses:
Wrecker Service
There are lots of general liability risks that a wrecker service has to consider. For instance, a car wrecker service vehicle can cause injuries to other people and damage to their property. When that happens, businesses can end up being required to pay for medical bills for drivers, passengers, and anyone else hurt in an auto-related injury.
Well Drilling Companies
There is always a risk that a well drilling company’s business operations or workers can cause damage to third-party property. This falls under general liability risks. When that happens, the business will be required to cover repair and replacement costs. For instance, a technician sent by the company can make a wrong move with a power tool which results in damage to a client’s home. You could also have a contractor from the same company being accused of worsening a crack in a client’s well. All of these are general liability risks for a well drilling company.
Cremation Services
A cremation service faces unique challenges and risks that can affect its business significantly. As a cremation service, your job is to help your customers in the most difficult times. If you manage to do that job well, your customers will love you for it, and your reputation for quality and personal service will grow. On the other hand, if you make mistakes, you can end up facing serious financial losses.
Unfortunately, a single site injury or an incident of bad service can destroy all that you have built. You can end up with your clients suing you for damage to their property or injuries sustained on or off your property as a result of your services. A cremation service is susceptible to things like fires, theft, vandalism, weather events, and other issues.
2. Employment Liability Issues
Some of the most serious issues that your company might have to deal with come from current and former employee claims. This is generally known as employment liability. Some of the most common examples of employee liability claims include sexual harassment, discrimination, breach of contract, payroll issues, and so on. Employment liability issues affect different kinds of companies, and they arise from different scenarios. For instance, employers can sometimes change time records so they can avoid paying overtime. Apart from that, employers can also fail to provide meal periods and due rest.
Employment liability issues can lead to substantial defense costs. They can be quite costly, especially if they end up being class actions. Nowadays, a lot of insurance companies that cover employment liability usually exclude things like wage and hour claims. This is because wage and hours claims can affect a lot of individuals and thus end up costing hundreds of millions of dollars. A lot of insurance policies specifically leave out coverage for these types of claims. However, because of how common they are becoming, a good percentage of insurance companies have now introduced endorsements that are designed to cover defense costs for these claims.
With an aging workforce, a lot of businesses are receiving more requests for medical leave. While some of the requests are clearly justifiable, others are not. Unfortunately, if an employer denies a request for leave, an employee can file a claim against them or against the particular supervisor. This is another common employer liability risk.
3. Product Liability Issues
Another common liability risk for different types of businesses is product liability. If you run a business that manufactures or distributes products, your company can be held liable for any property damage or injury caused by the product. Additionally, the company can also be held liable if a third-party claims that you advertised a product falsely or in a manner that resulted in losses. Defective products cause thousands of injuries daily all over the world. These cases are so common that there is now a set of rules that deal with who is responsible for the dangerous or defective products. These rules have been put in place to make it easy for the injured individuals to recover damages.
Any type of business can place defective products in the hands of a customer. This is why there are laws that require that products meet the ordinary expectations of consumers. All products that have unexpected defects or dangers can not be said to meet the requirements of the consumer. For there to be product liability claims, at some point, a particular product should be sold openly in the marketplace.
In some instances, there also has to be a ‘privity of contract’ between the injured individual and the supply. However, this requirement is no longer valid in most states today. This means that the injured person might not even be the person who purchased the product for them to make a claim. Any individual who gets injured as a result of a product or service can recover from their injuries.
Types of Product Defects
There are three primary types of defects that can result in injury or property damage leading to business liability. This includes design defects. A design defect is present in a product even before it’s manufactured. This means that something in the initial design of the product will be inherently safe. For instance, if someone gets injured by a garage door. The garage door companies that manufactured the door can be held liable if the garage door is found to have a design defect.
Apart from design defects, products can also have manufacturing defects. This can affect different types of businesses, including auto shops or elevator services. Manufacturing defects can occur in the course of a product’s assembly or manufacturing processes. For instance, if an elevator service assembles an elevator kit wrongly and this leads to property damage or injury, they can be held liable for the injuries and damage.
The last type of defect covers marketing issues. If there are errors in the way a product is marketed, a business can be held liable. This includes things like insufficient instruction, improper labeling, and inadequate safety warnings. This can affect different types of businesses, including well drilling companies. If a well drilling company fails to give proper instructions on how to operate a well, it can be held liable for any damage.
4. Business Cyber Liability Risk
As businesses increasingly become dependent on the internet for their operations, the risk of cyberattacks and data breaches is also increasing. This mostly affects small businesses that have weak cybersecurity measures in place. As a result, they are an attractive target for cybercriminals. Cyberattacks are more than just an inconvenience. They can put you out of business. Did you know that more than 60% of small businesses shut down within six months of a cyberattack?
Due to the serious nature of cyberattacks, a lot of businesses take out cyber liability insurance. This type of coverage helps businesses recover from financial losses that result from data breaches and cyberattacks. Cyberattacks cause more serious problems to companies that handle sensitive information. This includes things like credit card numbers or work in the cloud. They also seriously affect cybersecurity companies. Hackers usually target businesses in the retail, healthcare, and financial services sectors. However, any type of business can fall prey to cyber criminals.
5. Directors’ and Officers’ Liability Risk
Decisions that are taken by directors and officers as part of their duties can lead to problems for companies as well. This is why companies take out directors’ and officers’ insurance to protect their personnel from claims, liabilities, and litigations. The lawsuits that can result from decisions made by a company’s top executive can be quite expensive. Apart from the legal cost, companies that do not have insurance won’t be able to attract top managerial talent.
6. Environmental Impairment Liability
This is another liability risk that affects different types of companies. Environmental impairment issues can lead to penalties that can cripple a company’s finances. This can be a result of the current or past operations of a company.
Penalties are usually a result of claims for clean-up, bodily injury, and property damage arising from pollution caused by a company’s operations. In some instances, the damage caused by a company’s activities can only become evident years after the event. In some instances, the damage and injuries can be very sudden. Fortunately, there are certain types of insurance that cover pollution and environmental damage. These policies are designed to cater to evolving environmental law.
7. Liability Risk Management
It’s important for companies to put in place measures for liability risk management. This is a division of risk management that falls under Operational Risk Management. The first step in liability risk management is to quantify the risk and translate it into a currency amount. Once that’s done, the company should implement appropriate controls to reduce such an amount. After that, the risk should be further hedged through commercial insurance as this will further minimize the translated risk amount. Lastly, a business will need to monetize the minimized risk amount that they face.
There are various factors that determine the manner by which a company should implement Liability Risk management practices. This includes things like the size and complexity of a business and the state of jurisdictions involved. Fortunately, due to improvements in modeling and the availability of previously inaccessible data, companies can now better measure liability risk with higher levels of confidence.
Every type of business faces different types of liability risks. Whether you are running an auto body shop, supplying vinyl polymers, or have an industrial generator service, it’s important to look into the different types of liability risks that you face. Even cesspool pumpers are not immune to liability. Once you understand the types of risks you are facing, you should find ways to manage or reduce it. One of the best ways to do so is through insurance. Insurance will not stop bad things from happening, but it can shield the business from the financial blowback of the risks. This is why it’s crucial to ensure that your business is covered against the different risks.