Keep your retail premises safe this festive season

Contracts pose the biggest liability risk for businesses


Business agreements are ruled by contracts and where they are not they should be. Contracts are becoming increasingly complex and if the content of the document is not considered carefully it could lead to a significant increase in the liability exposures faced by business owners.


This is according to Dianne Kirk, Executive Head of the Liability Division of SHA, who says that in tough economic times such as those being experienced in South Africa at the moment, companies become much more risk averse and their ability to absorb unexpected losses diminishes dramatically. This is why it is important that businesses spend the time and effort making sure contracts being entered into clearly reflect the responsibilities and obligations of all parties, with particular attention to any limitations of liability.


Signing a contract without appreciating the impact of accepting ‘open ended’ liabilities just for the sake of securing work is never a good thing. “As liability underwriters, we have witnessed a rise in the number of summonses being issued in civil litigation cases and it is clear that more companies and customers choose to pursue litigation as a first option when there is a dispute.”


Pointing to some of the key findings of the 2018 SHA Specialist Risk Report, Kirk notes that 15.5% of businesses had experienced legal action brought by a customer against their business. Additionally, the survey also revealed that 58% of the litigation cases against these companies, were related to contractual issues.


“In our experience, we have seen that contract risk management is nowhere near sufficient. It appears that many companies are still signing agreements that are generic or rolled over beyond their initial expiry date without consideration of changes in job specs or other factors. This leads to problems when there is a disagreement between the parties.”


She adds that this kind of approach to dealing with contracts often leads to disputes between the parties involved. “When businesses strike deals without properly structured and documented agreements, the parties are left at the mercy of the Common Law to resolve disputes. This often results in prejudice of at least one of the party’s interests.”


Kirk states that it is crucial for businesses to have well-planned contracts in place, and to thoroughly scrutinise even standard contracts with every new agreement that is made. “Once a contract has been agreed contact your insurance broker and discuss what insurance is needed to protect the business, taking note of any prescribed coverage and limits that may be in the contract. Involve your broker early on and not at the last minute or when workers are at the contract site and cannot start until proof of insurance has been provided as is often the case.”


Additionally, Kirk also cautions that businesses cannot fully rely on disclaimers. The Courts’ take a dim view of signs that may be unreasonable, not visible or not displayed in a variety of languages. It is of course always better to have disclaimers and appropriate indemnities than to not have them but they should really only be considered a first line of defence to protect a business from liability claims.


Lastly, she says that ensuring that one’s business has adequate broadform liability insurance in place is essential. “This requires the business owner to go through the company’s liability policy carefully with their broker, seeking clarity on any term, condition or exclusion that they are unsure of. It is very important to take note of the claims reporting obligations contained in the policy so as to ensure that any incident or circumstance that has or could lead to a claim, whether the Insured is responsible or not, is reported and that no admission of liability is made. The sooner the Insurer is notified, the better as it may be necessary to obtain witness statements or CCTV footage without delay,” Kirk concludes.