Frequently we come across liability risk management information of general interest to professional and commercial enterprises of all kinds. Following are brief introductions to these ideas. We hope you find these as valuable starting points for further exploration.
Records Keeping under the New Discovery Rules Applicable to Electronically Stored Data: One risk to guard against is that inability to retrieve electronically saved data can be treated as an adverse fact during a lawsuit. It is useful to review the process of storing and retrieving data and making sure that it will support liability defense when the need arises. Also keep in mind that electronically stored data can include not only formally saved files but also emails, saved phone calls and messages, text messages, and possibly more. In addition to the risk of adverse presumptions when electronic data cannot be retrieved, there is the consideration of how the records keeping system can impact on the costs of litigation. The costs of reviewing vast quantities of electronically stored data can be much greater than reviewing paper documents. Reviewing systems for electronically stored data in the context of how they might impact litigation is a key risk management action.
Limitation of Liability Clauses: Professional services and other commercial activities are often governed by contracts. One of the functions of contracts can be allocation of risk and one contract tool for accomplishing this is the Limitation of Liability Clause. An example might be a clause that limits liability to the amount paid for the service or product. Enforceability of such clauses varies from state to state. A limitation of liability clause can be considered as a risk management tool. However, to determine the extent that such a clause may be effective, it is best to consult with an experienced attorney.
"Hold Harmless and Indemnify" Contract Language: Contracts with "hold harmless and indemnify" language need to be carefully reviewed to avoid the risk of contractually undertaken liability. The risk is that, under such contract language, greater liability exposure including possible increased defense costs may be transferred from one contracting party to the other. Also, such contractually undertaken additional exposure is likely excluded from coverage under many liability insurance policies. This is another liability risk concern to be discussed with an experienced attorney.
Warranty Language: Warranty language in a professional services contract is another risk transfer pitfall to be avoided. The question to consider is whether the professional service provider is warranting that a service conforming to a professional standard of care will be provided or whether the warranty is for the ultimate outcome of the project. Language that warrants ultimate results rather than a service meeting a professional standard of care increases the risk of liability and may result in problems with applicability of professional liability insurance coverage. When in doubt, discuss such concerns with an experienced attorney.
Contracts and Risk Transfer: Professional services are provided under contracts. Other kinds of commercial transaction are also governed by contracts. They can be express or implied and written or verbal. One function of contracts is to allocate or transfer risk. Awareness of risk allocation and transfer aspects of contracts is an important aspect of risk management. Contract terms to be watchful for include “hold harmless and indemnify” and “sole.” Contractually undertaken risk is likely excluded from liability insurance coverage. Other risk related contract provisions deal with insurance requirements. Remember that without verification that the required insurance will be in force when a possible loss occurs or claim is made, such provisions may turn out to be ineffective. These are questions to consider with the help of an experienced attorney when entering into contracts.
Website Liability Concerns: Many businesses and professions now maintain websites. It is worthwhile to review them with liability risk in mind. Can information on the website be viewed as being misleading or incorrect? Does the website incorporate a disclaimer? Can anything published on the website be viewed as being libelous or infringing on copyright or other intellectual property rights? Were any needed permissions to use content obtained? If the website is interactive and user information is stored, is there adequate protection of the data? Does website content unintentionally create or raise user expectations or create warrantees? Does website content comply with applicable regulatory constraints?
Licensing Considerations: Businesses and professions are subject to myriad state and local licensing requirements. Failure to comply with licensing requirements can come up as an issue when injury or professional liability claims are pursued. Does your firm have a system for keeping licenses current – not only for the firm as a whole but also as to any individual requirements? If you operate across state lines, does your firm comply with the requirements of all relevant states?
Quality: Whether Products or Professional liability is involved, quality control is a key element of any liability avoidance program. How familiar are you with available quality control tools? Would your firm benefit from becoming familiar with “Six Sigma” and the “ISO 9000” family of guidelines and standards?
Response Planning: Those familiar with the adage that “if anything can go wrong, it will” may benefit from identifying some of the specific scenarios that lead to or can result in liability and giving some thought to planning responses. For example, a business with potential for facing a product recall scenario can devise a plan – or at least a set of principles to follow in responding. A design professional who spends considerable time at a construction site can anticipate that sooner or later there will be a serious accident and prepare by having a checklist of response considerations readily available.
Evaluating Client and Business Partner Risk: Some of us may be familiar with the principle that the people that you with associate with have a great influence on you. Careful evaluation of clients and business partners from a liability risk point of view can be a key ingredient of any liability risk management program. Checking reputation – especially as to litigiousness, inflexibility, reasonableness, quality consciousness, financial health and stability, etc. – and taking these considerations into account when making a conscious decision on whether to enter into a business or professional relationship makes a lot of sense.
Computers, Automation, and Liability Risk: Certainly the computerization and automation of repetitive tasks has improved consistency and quality of information related activity in business and the professions. However, associated with these benefits are some added risks that need to be guarded against. There is still a need for human monitoring, checking, and comparing computerized work product against human common sense. If the output looks odd or inconsistent with experience, there is a need to check it out in greater detail. One of the problems with automation is that it magnifies and repeats what might otherwise have been a minor problem.
Liability Risk Management Overview: One way of looking at Liability Risk Management or Liability Loss Avoidance is that efforts can be broken down into three broad categories. The first is reducing the risk of errors, omissions or defects in the service or product. This is largely quality control focused. The second is reducing a risk of becoming a defendant in a lawsuit. This, in large measure, may be client or customer relationship management. If clients or customers feel they will be heard and their concerns addressed they are less likely to seek legal remedies. The third is taking actions that will reduce the cost of addressing those claims and lawsuits that cannot be avoided. Much of this is record keeping that may provide information needed for summary resolution or at least reduce the number of “gray area” issues that can legitimately be contested during claim litigation.
Mediation; Is it a Risk Management Tool? Definitions of Risk Management generally incorporate the idea that risk management is a process of identifying, controlling, eliminating or minimizing uncertain events – especially those with undesirable consequences. It is also generally believed that outcomes of jury trials are uncertain. Accordingly, to the extent that a defendant in a lawsuit seeking to determine liability and award damages acknowledges that the eventual outcome is uncertain, litigation through trial involves risk. Managing that risk can mean finding a way to resolve the conflict without turning the outcome over to the court or jury. Mediation is a process for pursuing resolution where the risks involved can be factored into a decision on an acceptable outcome for both sides. The outcome of mediation is generally a settlement that takes into account costs and risks of possible jury trial outcomes.
Software Piracy Risk: The Business Software Alliance is reported to have reaped $13 million in software-violation settlements with North American companies in 2006. 90% if that came from small businesses. Sloppy record keeping can be a factor that impacts on the settlement value of a software piracy claim. A good system of software acquisition and use records can be useful in defense of software piracy claims and a desirable liability risk management strategy. Employees can install programs without management knowledge. Does your firm have software installation restrictions? Is there a system for monitoring installation of software? Are restrictions on installing software on the firm’s PC’s enforced?
Going Green: Green or Sustainable Design, to the extent that it departs from the established, accepted standards does create some new risks for design professionals. In fact, any provider of professional services or any manufacturer or distributor or seller of products that departs from the familiar and begins performing differently increases, in varying degrees, risk of liability. There can be unexpected problems and consequences that actually cause damage. Also there can be disappointments in the expected performance of environmentally friendly innovations. When considering adopting a “green” feature, do not overlook viewing it from a “what can go wrong” point of view and do what is possible to avoid such pitfalls.
Using Technology to Reduce Liability Risk: Progress in technology and, more importantly, the increasing availability of leading edge technology to consumers at affordable prices, allows creative applications for business purposes. The December 27, 2007 issue of Engineering News Record, for example, contains a story titled “Firms Find Good Jobsite Photos Are More Than Pretty Pictures.” Although the story focuses on construction related uses of photos, including helping focus on site safety concerns, inexpensive digital photography can be useful for a variety of liability loss avoidance applications. Insurance Brokers can now better document the risk intended to be insured. Providers of many other kinds of professional services can document “before” and “after” conditions and progress of work. Technology useful for risk management purposes need not be limited to digital photography. For example, computerized modeling combined with adaptation of gaming theory to risk evaluation could evolve into something interesting and useful.