Skip to main content

10 Ways to Protect Your Business from Liability Risks

A single lawsuit can sink a small business. Here are 10 ways to protect your business from liability risks:

  1. Identify areas of risk.
  2. Develop processes that reduce risk.
  3. Develop response plans.
  4. Train employees.
  5. Document.
  6. Set an example.
  7. Collect and listen to feedback.
  8. Be aware of relevant laws – and follow them.
  9. Test your procedures, products and plans.
  10. Get the right insurance.

1. Identify Areas of Liability Risk

Identifying your company’s risks is the first step to mitigating them. Consider anything that could cause harm to an employee or your company and result in a lawsuit. Bodily injury, property damage, and financial loss are common causes for lawsuits. Here are a few examples of risks that could result in a legal action:

  • Diseases
  • Injuries
  • Equipment breakdowns or malfunctions
  • A product malfunction
  • Supply chain interruptions
  • Errors
  • Lost or delayed documentation

Identifying areas of risk prioritizes the most likely or most disruptive risks, but it’s important to consider everything you can in order to prepare and mitigate the impact.

Here are a few suggestions on how to identify areas of risk if you’re not sure where to start:

  • Hire a professional
  • Get feedback from employees and clients
  • Use software or modelling
  • Research risk management in your industry

2. Develop Processes to Reduce Liability Risk

Next, you should develop processes to reduce your risks. For example, set procedures for communicating the expected timeline and cost of a deliverable or service, have safety requirements for your workplace, arrange for snow removal, or have building maintenance and cleaning schedules.

The processes you develop will be dependent on your industry, business operations, and individual liability risks.

3. Develop Response Plans

Developing a response plan in the event the worst happens is essential. It is best to be prepared for a worst-case scenario. Consider:

  • How can your business protect employees and clients should the risk occur?
  • How can you prevent a lawsuit in the event of the risk occurring?
  • How can you protect your reputation and assets?
  • What measures can you take to mitigate damage and disruption?
  • What do you need to communicate if the event occurs?
  • Do you account for the event in any contracts or agreements?
  • How would your business respond if you are sued?
  • Who needs to do what to respond effectively and mitigate harm?

4. Train Employees

Training your employees of emergency procedures and proper processes is essential to mitigate risks. After all, risks are mitigated by action, not just planning itself.

Training should be ongoing – regular reminders and updates may be necessary.

5. Document

Records help in the event of a dispute or lawsuit. It’s important to save emails and important documents such as contracts, invoices, and payment records. Follow-up with spoken conversations with written (or emailed) confirmation).

Don’t forget to keep backups in case physical copies or your computer gets destroyed. We recommend cloud backups in addition to secured digital copies (and physical copies, as needed).

6. Set an Example

As a leader, it is critical that you model the risk-mitigating behaviour you want to see in your employees. It’s easy to let things slide if the boss doesn’t follow the rules. Hold yourself to a high standard and you can more easily hold your employees to that same standard.

7. Collect and Listen to Feedback

Customer complaints, internal and external surveys, employee feedback, and professional risk management advice can all help you mitigate risks.

8. Be Aware of Relevant Laws

It may go without saying to follow the law, but sometimes knowing exactly what you are legally allowed to do and responsible for can be difficult. It is worth the expense of a lawyer to understand the laws governing your industry and business.

9. Test Your Procedures, Products and Plans

Testing the effectiveness of your procedures, products and response plans can help familiarize your company with them and identify problems.

10. Get the Right Insurance

Your insurance is the last line of defense when it comes to liability risks: should the worst happen and all of your safeguards fail, your insurance can help cover the costs associated with a lawsuit.

There are many different types of liability insurance. The most common types of liability protection include:

  • Commercial general liability
  • Professional liability (also known as errors & omissions coverage)
  • Cyber liability
  • Directors & officer’s liability
  • Product liability

The type of liability insurance your business needs will depend on your industry, operations, where you operate, and other factors. Work with an experienced commercial insurance broker to ensure you have the right coverage for your needs.