chapter 10 Protecting Your Assets: Liability and Risk Management

Chapter Objectives Define the terms risk management, contract, liability, and negligence. Explain key elements of contract and tort law applicable to commercial recreation, event, and tourism businesses. Discuss the methods for protecting your company assets, guests, employees, facilities, and funds. Describe principles of risk management and their application in preparation of a risk management plan.

What Is Risk Management? The process of doing everything you can to protect your guests, employees, client property, company assets, and equipment from losses. It involves much more than just responding to guests’ injuries.

Main Issues Related to Risk Management 1. Relevant laws, legal concepts, and contracts 2. Losses and injuries to clients 3. Injuries to employees 4. Financial and asset losses

Must Be Familiar With Basic Legal Concepts RET providers operate within a legal system and must be familiar with laws, court decisions, and regulatory agency policies. Ignorance of the law is no excuse; this could result in contract violations, lawsuits, loss of operating licenses, and bankruptcy. Must retain qualified legal counsel, especially at start-up.

Standard of Care What is required for preventing and responding to accidents Determined by these factors: –Laws and regulations –Identifying common practices or standard operating procedures of companies that provide similar services in comparable environments –Documenting safety policies, staff qualifications and training levels, facility requirements, and types of equipment normally used by providers of this type of service

Liability A critical concept affecting RET firms A situation in which a company is subject to a lawsuit because of a failure to carry out certain responsibilities as defined by law, standards of practice, or contractual agreement Two types of liability: contract liability and tort liability

Contract Liability Involves lawsuits based on charges of failure to perform as directed by a contract

Tort Liability It involves lawsuits based on a wrong committed by an employee or company outside of a contractual agreement. May include these violations: –A person’s legal rights –A breach of some public duty or responsibility Results in injury or loss. (continued)

Tort Liability (continued) Intentional torts, such as assaults or slander, are treated as criminal and require proof of an intent to harm. Unintentional torts are related to negligence and typically result in the payment of damages to the injured party. Unintentional torts are more common in RET settings where a guest is unintentionally injured during a recreation activity.

Negligence It is a key legal principle in tort liability. Must be proven before a company can be held responsible. It is an unintentional act of omission or commission in which a person fails to do something that a “reasonable” person would (or would not) do under similar circumstances. (continued)

Negligence (continued) Often a lawyer trying to prove negligence will determine standards of care or standard operating procedures of companies that provide similar services in comparable environments. Compare the defendant’s policies, staff training, employee actions, and equipment to these industry standards of care.

A Client Safety-Oriented Company Guest and employee safety must be paramount to management. –This is especially important in risk recreation. –It is still important in non-risk RET settings. For risk recreation... –Frontline staff must be thoroughly trained in leading higher-risk activities (training must be documented). –Often staff must be certified. –Frontline staff must be experienced in proper emergency response. Company must balance actual risk present in program with competency of program’s leaders. Risks with international travel include theft, terrorist acts, and guests contracting diseases.

Employee Safety Common for employees to be injured at workplace (at office, at a spa, at an event, or in a wilderness area) Can result in … –Time lost on job –Higher insurance rates –Lower guest service –Lawsuits (continued)

Employee Safety (continued) Employee injury lawsuits are one of the fastest-growing types, which make up an increasingly significant cost for employers. Injuries to RET providers can be more serious and expensive –Sore wrists associated with carpal tunnel syndrome in office workers, broken legs, even death –Wrongful termination, harassment, or discrimination in workplace

Financial Losses Losses to buildings, equipment, and other assets From a variety of causes: –Theft, fire, actions of others, or severe weather –Loss of a key employee Immediate loss of a major asset –Could cripple a company financially –Could adversely interrupt longer-term operations To minimize financial losses –Policies, training, and supervision of staff –Adequate insurance coverage

Cannot Eliminate All Risk Cannot eliminate all risks without destroying the inherent nature of many recreation activities. No recreation activity is 100 percent safe. Company must manage risks by conducting basic risk management operational procedures and through transferring some risk to insurance firms. Bring together all risk reduction elements into comprehensive risk management plan.

Insurance Is Required A legitimate company owner in the United States and Canada would be foolish to operate without any insurance coverage. –It is also illegal to do so in many instances. –Fires can destroy company buildings and their contents. –Errors in planning a corporate event can result in demand for a large financial reimbursement. (continued)

Insurance Is Required (continued) Most regulatory and permitting agencies require minimum insurance coverage to protect public health and safety. –U.S. National Park Service requires a minimum of $1,000,000 of liability insurance coverage to operate in a park. –Workers’ compensation insurance is required by law in every U.S. state and Canadian province.

Risk Transfer Through Insurance Insurance companies transfer or share a portion of the risk of loss with a recreation provider for a fee. Fee is based on loss history for that type of service and for a specific business and its business practices. There are many types of insurance, and limitations on coverage vary widely. You must purchase the correct type and often customize coverage to your situation through insurance riders, or coverage extensions.

Types of Insurance for RET Businesses Commercial general liability covers injury or loss to the public when participating in your facilities or programs. Errors and omissions covers customers who suffered losses because of errors you made or things you failed to do but should have done during planning of activity (e.g., travel counselor errors). Fire and general property protects against loss from fire, vandalism, and wind, hail, and storm damage (but not from flooding). Commercial automobile is for motor vehicles used. Business interruption is when a business is shut down. Crime protects against losses from theft.

Workers’ Compensation Insurance Provides no-fault coverage for employees injured on the job –Pays medical expenses –Reimbursement for wages lost because of accident Mandatory insurance covering employees Worker injuries can create huge expenses that are beyond the means of small businesses to cover (e.g., accident resulting in a lifelong disability) Spread risk among pool of all employers, making it more affordable (continued)

Workers’ Compensation Insurance (continued) Different rates for distinct job types: Higher for more risky jobs (e.g., ski patrol that uses explosives to control avalanches) Workers’ comp is a significant cost to many RET providers: Greater chance of serious injury, compared with other types of business Cost is a percentage of payroll: Can range from $0.15 to $0.40 per dollar of payroll Employers with many claims pay a higher rate

Guidelines for Preventing Accidents Provide proper staff training. Document staff training and experience. Frequently inspect and maintain equipment, with documentation. Warn guests about the hazards and have them assume these risks: Acknowledgment of risk form identifies risks associated with activity, states that guest is aware of these risks and chooses to participate despite risks. Use proper emergency response. Prepare written accident report. Maintain communications after an accident.

Components of a Risk Management Plan Management policy statements and duties Hazards and risk factors Risk transfer and insurance Inspection and abatement Accident reporting and investigation Safety and health committee Training Emergency procedures