In the car care business, there are many incidents that could result in liability claims coming at you from all directions. That is, others claim that some occurrence arising from the conduct of your business has caused them harm, alleging you should pay for the damages.
Liability is a responsibility or obligation to others, which courts recognize and enforce. What does that really mean to you? Following are several types of liability that you face in your business.
Premises liability is usually confined to specific locations. Liability arises out of an injury and/or damage due to the ownership, maintenance, or use of that location. Your building or job site, for example, is a specific location.
Let’s say a customer slips and falls due to something on the floor or an uneven sidewalk. You could be held legally responsible for the resulting bodily injury or property damage.
Operations liability arises out of injury or damage caused by activities which are necessary or incidental to conducting your business. Whether you are washing, detailing or servicing a vehicle, or helping a customer in your sales area, an incident can lead to your having to pay damages to the person suffering damages.
Products liability and completed operations liability arise after you have completed your transaction. Products liability is caused by defects in product design, manufacture, or the failure to warn or explain how to use the product. If you are the manufacturer of the product, if the allegation is proven, you will be held responsible for damages.
As a seller, you will at least have to defend yourself if you are named in a law suit alleging damages if the damages occur after the sale and the product has left the premises. Completed operations liability alleges defective or improper workmanship and applies to your work and begins once the operations have been completed and the customer leaves your location.
Personal and advertising injury arises from several named offenses:
- False arrest, detention or imprisonment;
- Malicious prosecution;
- Wrongful eviction;
- Libel or Slander;
- Use of someone else’s advertising ideas; and
- Copyright infringement.
Injury (including consequential bodily injury) because of the conduct of the insured and others on your behalf can lead to large judgments in favor of the plaintiff.
Automobile liability comes from the ownership, maintenance or use of covered autos including vehicles you own or use in your business. The exposure is normally triggered by negligence and is subject to various laws.
Garage keepers liability in the car care business is very common. As a caretaker you have responsibility for damages that result in loss of value to the vehicle while the auto is in your care for repairs, service or safekeeping.
So, what triggers liability? Everything you do (or don’t do) and everything you say (or don’t say).
Direct liability results from your own conduct so you have a degree of control over your own behavior.
You can also be responsible (therefore legally liable) for the conduct of others on your behalf. This is called vicarious liability. It is when the liability is transferred from one party to another because of a relationship between the two entities.
For example, when you as an employer direct activities of your employees, the activities of the employees become your responsibility. Whether as a result of negligence or because some law creates the responsibility, liability creates a situation that puts your assets at risk.
The word “damages” has been used several times in explaining the result of legal responsibility. In the case of liability, the word damages should start and end with a dollar sign. Damages from a slip and fall accident at your car care facility could include medical bills, lost income, rehabilitation and other expenses, all of which have a specific value determined by the provider of the services.
In addition, you could be responsible for other damages which are not as easily valued. This could include the value of pain and suffering.
You usually learn you are subject to paying damages when someone brings a lawsuit against you and/or your business. While paying for bodily injury or property damages can be very costly, most lawsuits do not result in judgments for the plaintiff. But, that is not the most costly or most likely expense you will incur. Defense cost is the most likely expense you will have to pay. This expense will be incurred even if you win your case. Many of the lawsuits never go to trial and you may not be found responsible for damages it does go to trial, but in every one of these cases there will be legal expenses.
Risk finance & administration
Risk finance means using the optimal method to pay for the losses that do occur. These could include savings, line of credit or, for the unprepared, luck. Most business owners find that the purchase of insurance can help safeguard the financial health of their business by exchanging the known premium for the unknown exposure to potential loss.
Risk administration is the most important step. This is when you implement and monitor your risk management plans. Simply stated, this means you continue to review, revise and improve your methods at all times.
How does the purchase of insurance help? Liability policies include an agreement from the insurance company to pay on your behalf the money you become legally obligated to pay because of your premises and operations. While there is some exclusion, this is a broad promise. The insured includes you and others for whom you may be responsible including your employees.
The amount of protection for bodily injury or property damage will be limited by the amount of coverage you choose to purchase. Arguably the most valuable protection you receive from your liability policy is payment of defense costs. As mentioned earlier, most claims for damage do not result in payment of a loss. However, every demand for payment results in costs to defend yourself. This is true even if a claim is frivolous. The policy provides protection for you because the defense costs, in most policies, are paid in addition to the policy limit. Be sure to check the defense cost provisions in your policy. It is important!
There are usually provisions in the policy stating that defense costs no longer are paid if the policy limit is offered in settlement of the claim. However, most claims are either closed with no payment or with amounts less than the limit of insurance so this is still a very valuable part of your policy’s protection for your business and your assets.
Anyone who is in business needs to protect themselves by making certain funds are available to pay damages you become responsible for as a result of damages to others. This, of course, includes having funds available to pay defense costs. Whose responsibility is it? Each of us and all of us working together must continue to strive to identify exposures and create ways to protect the financial well being of each as it effects the well being of the whole of our economy.
Scott Brothers is the president and CEO of the Joplin, Missouri-based The Insurancenter.