INSURANCE, LIABILITY AND RISK MANAGEMENT
By: Dennis Slabaugh, Senior Risk Management Consultant
DISCLAIMER: The following information is being provided for the purpose of
conveying general principals and ideas about the above topics. It is not to
be construed as legal advice or exact policy interpretation. Prior to any
action or reliance on the following information, always seek the advice of
legal and other professional consultants.
Let me begin by giving an overview of the concept of liability or
negligence. These principals will be used through out the following answers.
To have liability to someone is based on the facts and principals of
negligence. You can be directly liable or indirectly liable (vicarious).
liability is defined as " obligated according to law or equity"(EQUITY: a
body of legal doctrines and rules developed to enlarge, supplement, or
override a narrow rigid system of law). Negligence is defined as failure to exercise the care toward others which a reasonable or prudent person would do in the circumstances, or taking action which such a reasonable person would not.".
The mere fact that a person is injured or damaged in some way does not automatically mean that someone is liable for their injuries. Courts and juries do recognize that "stuff" happens, and each of us are accountable for our direct actions.One may assume liability for another through a contractual agreement,or one may be liable to another out of having been negligent.
1). Am I liable for injuries to someone who uses my tools with or without
HOME SHOP: Most likely you are not going to have an "agreement" of liability
or indemnity for a friend or relative using a tool in your shop, or a
borrowed tool in their own environment. In this case you would apply the
"prudent person" rule. Was the tool in proper working order? Was the
borrower a capable user of the tool? Should you have reasonably anticipated
any danger or accident to the borrower? If the answer to these question is
no, then you were not negligent and likely not liable for any injury to the
COMMERCIAL SHOP: In a commercial shop situation, you will likely be held to
a higher "prudent person" standard. Again, in absence of an agreement, the
same situations above would apply. Bear in mind, that you would likely have
many more potential hazards in the commercial shop even given the same tool
usage as above. ( more slip and fall hazards, more noise, dust, etc.) If you
were providing shop time to a person for a fee, or on a longer term basis
than a Saturday afternoon, you should have a hold-harmless agreement for
that person(s) who will be in the shop. You could have an agreement whereby
the borrower agrees to hold you and your company harmless for any and all
injuries, claims, etc. Keep in mind though, that courts will usually throw
out such an agreement if it is unreasonable or in cases of gross negligence.
Be aware of workers' compensation laws and statutes which may apply to a
shop user particularly if that user brings along an employee and the shop
user does not have his own workers' compensation coverage. Require a
certificate of insurance proving coverage for the shop user and his employee.
Lastly keep in mind that if someone were to gain access to your shop without
permission, you may still be held liable for injuries if any of the
situations regarding condition of premises, tools, or operator knowledge of
operations. An example might be a child who gets into an unlocked shop with
no barriers to stop them and they get hurt on a normally operating tool.
2). If I operate a home shop, will my homeowners insurance cover me?
First you must distinguish if it is purely a hobby-shop or a shop that is
used to earn money. If you are using the shop to generate income of any
kind, most homeowner policies will not cover business activities for
liability claims. Don't get confused by a "home office" endorsement. These
extensions of coverage are for "office" type exposures such as music
teachers, bookkeepers, etc. The same goes for damage, fire, theft, etc of
tools and equipment. If you are operating a commercial shop at home, most
homeowner's policy exclude coverage for business tools, equipment and
inventory, or provide a limited coverage such as $1000 or $2000 maximum.
3). I carry tools and equipment in my car or truck. What if something were
stolen out of my vehicle?
Some homeowner's policies will cover PERSONAL property stolen from a
vehicle. Some require a special extension of coverage. BUSINESS property
should be covered on a tool or equipment floater which will provide coverage
at a jobsite as well.
4). I sell my woodworking products to the general public. What if someone
gets injured from my product?
We are all familiar with defective products and injuries that are caused by
them. The first defense is a commercial general liability policy which
includes products and completed operations coverage. Completed operations
would come into play such as when you hang some kitchen cabinets and they
fall off the wall and injure the homeowner. As for product liability, many
questions have to be answered and conditions have to be proven for a claim
to be valid. An obvious one that comes to mind is the spacing of crib
bars. There are now standards that must be followed, and if you build
outside of these "standards", you can be held liable for injuries that
would occur. In other cases the rules of "reasonable expectation" would be
applied to test whether a prudent person should have know the product could
and would cause injury.
CONCLUSION: There may be many other questions to be answered and I will add
them as they are posed to me by e-mail or in the news group. Remember, the
best loss prevention measures you can implement are the same safety rules
that you use your tools by. You should always be thinking safety, and risk
control. Use "what-if" scenarios and don' t short cut to save a few pennies.
You will end up paying in the long run. Some of the worst losses to a
business come in the form of bad publicity relative to safe operations.
Remember the hospital patient in Tampa ? They bought insurance to pay the
monetary damages to the patient, but you can not insure the loss of business
from bad publicity, at least not at any reasonable cost. And, you can be
criminally accountable for gross misconduct such as was the case again in
Tampa where a shop disposed of solvent containers in a dumpster and two boys
climbed into the dumpster and were overcome by fumes and died. That business
is gone and the owners are serving felony jail time.