Accidents can happen at any workplace. With that in mind, many business owners take serious action to prevent physical injuries on site. When thinking about risks and responsibilities, business owners are usually pretty prepared for claims related to everyday incidents like trips, slips, and falls.
But customers and clients can also sue you if they think that a mistake in your services caused them financial loss, if a defective product caused harm, or if a cyberattack leaked their private information. There are countless claims a disgruntled client, customer, competitor, or even an employee could make against the company, and you have to be prepared. The best way to do so is to conduct a liability risk assessment that helps you identify your weaknesses, risks, and liabilities.
The High Costs of Countless Liabilities
Risks and liabilities plague all businesses, no matter their size, location, or the nature of their work. In a worst-case scenario, you may be found guilty of an accident, incident, or illegal actions—whether intentional or not—such as non-compliance with tax requirements.
If you don’t have insurance coverage in key areas and a third-party sues you, you’ll have to pay out of pocket for your legal defenses, settlements, and government penalties. Exactly how much can a lawsuit cost you? The Insurance Journal published a list of the 10 most expensive small business claims and found that defending and settling a reputational injury harm claim costs an average of around $75,000.
Necessary Business Insurance Coverage
To fully prepare for incidents and the resulting lawsuits, business owners need to identify their unique risks through a liability risk assessment and add or alter the associated insurance policies. A few of the most common forms of business liability insurance include:
General Liability Insurance
This insurance protects your company against claims of third-party injuries and property damage as well as advertising injuries, including copyright infringement, invasion of property, libel, and slander.
Workers’ Compensation Insurance
Workers’ comp policies cover your employees in the event of a work-related injury or occupational illness.
Professional Liability Insurance
Also known as errors and omissions insurance, this liability policy covers claims of negligence, inaccurate advice, inadequate work, and malpractice.
Product Liability Insurance
If your business produces or sells a product and causes physical harm to a customer or damage to their property, product liability insurance covers the claims.
The 6 Steps of Liability Risk Assessment
Even if you have proper coverage and all of the insurance forms listed above, your priority should be minimizing risks and avoiding liability claims altogether.
Comprehensive risk avoidance begins with a liability risk assessment. This process will determine the likelihood that different factors related to your company or products will lead to claims. While you can hire a professional to conduct an assessment, you can also complete an initial risk assessment on your own following these steps:
Identify the Risks in Your Facility and Products
Walk around your business and talk to your employees to identify everything that could cause an accident or injury. Things are not always apparent, and reading equipment instruction manuals can reveal some risks you never considered. The U.S. Occupational Safety and Health Administration (OSHA) website has detailed information to help you with this step.
Identify Who Can Be Harmed
For each risk you discover, you need to define who might be harmed. Some risks can directly affect your employees, but others can affect independent workers like cleaning personnel or distributors or even a person simply walking past your business. This step can identify what safety equipment you need, what repairs you should prioritize, and where you should place caution signs.
Identify the Consequences of Product Risks
A flawed or misused production can also lead to lawsuits. Try to identify the risks of personal injury and property damage involving products with sharp points and edges, suffocation risks, harmful chemicals or substances, etc.
Assign a Liability Risk Level
Based on the previous steps, you can assess the likelihood that the identified risks will result in claims against the company and even the severity of the damage caused. To do this, consider:
- The number of products you manufacture
- The possible number of users exposed to each product
- The necessary protective measures you could take
- The possibility of avoiding risks through instructions, alerts, and disclaimers
Implement Preventive Actions
Share your risk assessment results with your employees, implement preventive actions to reduce these risks, and check up on their development. For example, you can create new training modules on the proper use of equipment and hold sessions once a month.
Review Everything Annually
As you identify risks and take action to prevent them, document the process so you can repeat it annually and refer back to your notes. That way, you can determine whether the risks have decreased or whether it’s necessary to invest in more significant changes.
Avoiding Risks is a Constant Process
Having a complete picture of your company’s risks allows you to insure your business with the right policies and coverage amounts and identify preventative measures. However, be careful of becoming complacent after a risk assessment. Remember, risks and liabilities change along with your business, so as you grow, risk assessment and avoidance needs to remain a constant process.