Monday, October 1, 2012

Managing Company Liability

Many large companies self insure for various types of liability that they face and or they have insurance in place to cover them with very high deductibles to get lower premiums.   Smaller and Mid Sized companies do the same thing; but with lower deductibles that they pay in the event of a lawsuit. 

All well managed companies have the typical property and casualty insurance policies in place; but that is not enough to contain all the types of liability companies face in our litigious society.   As such, it is necessary to have insurance in place to cover a company's Board of Directors from being named in a lawsuit.   In addition, Errors and Omissions Insurance is necessary to cover a company related to mistakes made by its employees in the course of producing goods and services.   Employment Practice insurance in needed to protect a company from employee lawsuits.   And finally, the newest one is Cyber Terrorism insurance to deal with the potential threat of hacking into a company's computer system that results in identity, or proprietary information theft. 

All of these insurance policies cost allot of money; but for better or worse today, this is a necessary cost of doing business.   Even so, companies must practice lawsuit mitigation, as much as possible,  to avoid lawsuits altogether because frequent lawsuits will result in significantly higher insurance premiums.   This means implementing proper Board Meeting procedures and properly documenting all Board actions.   Clearly, employees must be well trained to produce the company's services and products without defects.   Employee lawsuits can be limited by documenting all employee actions and following consistent procedures in Recruitment, Selection, Hiring, Training and Termination.  Finally, to the degree possible, computer systems must be safeguarded to prevent hacking. 

All of these actions require considerable time and resources focused on limiting company liability.   This is pay now, or pay allot more later because failure to put all the things listed in place will surely result in many lawsuits each year.   Even when all these things are done correctly, there will still be some number of often frivolous lawsuits that must be dealt with each year.   The goal is to limit large judgements by running a tight ship.   The time spent on this process upfront, will save thousands of dollars and unproductive hours each year that do nothing to contribute to the growth and development of a company. 

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