Common Liability Exposures in Harsh Economic Conditions

Common Liability Exposures in Harsh Economic Conditions | Property & Casualty


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With a potential recession on the horizon, we know you want resources to help your business master the moment. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead.


A recessionary period (e.g., high unemployment rates, narrowed gross domestic product (GDP), reduced consumer spending) impacts organizations across all sectors. Economic uncertainty also elevates the opportunity for litigation and businesses are challenged with long-term uninsured risks. Consider these exposures to effectively manage your company’s recession-related risk.

Minimize Your Supply Chain Exposures

During a recession, businesses without substantial revenues and excess reserves are more prone to be forced into difficult financial decisions. Consider this as your company is reliant on the fiscal security of your partners, vendors and suppliers. Specifically, don’t automatically rely on your business partners’ insurance coverage to protect against third-party liability claims. As a member of a unique supply chain, your company can be held responsible for a counterpart’s torts.

Protection Options to Minimize Supply Chain  Exposures

Shield your company against these types of exposures with an expansion of your insurance coverage limits. While it may appeal to lower the expense of coverage, this action could expose your business to severe liabilities from supplier shortcomings.

Supply chain insurance can cover losses from a supply chain interruption. This protection offers the assurance to collaborate with suppliers who experience exposures beyond your control. Supply chain policies protect your income during supply shortages and cover lost revenue from the decreased output and the associated costs from an interruption. Most policies allow you to specify primary suppliers to ensure vital supply lines are adequately protected.

Ensure Solid Contracts to Lower Risks

During economic uncertainty, seamless contracts can protect from potential recession-related risks. Ensure contracts outline both parties’ obligations and include dispute resolution policies to avoid complicated and expensive disputes. A contractual indemnity term with foreign suppliers will ensure the supplier’s consent of U.S. court jurisdiction and indemnify its sellers here in the event of a product claim. It is important to remember that contractual indemnity is only as valuable as the manufacturer’s ability to pay.

While it’s always a poor business practice to hastily sign a contract, during unfavorable economic times, it can lead to additional risks and legal ramifications. Whether your organization partners with another company or engages in a merger or acquisition, don’t be strong-armed into making decisions when you are hesitant.

Protection Options to Minimize Contract Risks

When you enter a contract, work with an insurance broker/risk manager and legal advisor to develop a strategy that transfers and avoids risk when appropriate. Contractual risk transfer is a way to both finance and control risk. As contracts are negotiated agreements, there are several ways to transfer liability during the draft process. The five primary types of contractual risk transfer include:

  • Require specific insurance coverages (e.g., General Liability, Directors & Officers)
  • Necessitate additional insured provisions
  • Waiver of subrogation
  • Indemnity provisions
  • Unambiguous responsibilities

Hazards of Operational Changes

Some businesses alter their operations or products and services to survive an economic collapse. Your business could expand to discover new consumer outlets and revenue opportunities. While these approaches can transform your business and keep it afloat, they could also expose additional unknown liabilities.

Any organization that creates or markets products is at risk. While innovative product or service lines can be exciting, learning curves can put you at significant risk of product liability claims. Purchasing additional lines of coverage can protect against these exposures as surplus lines insurance policy may only cover claims from one product.

Consumer shifts and expansions can also open your business up to class action lawsuits. New markets may react differently to product failure. It’s imperative you secure the right coverage for potential liabilities that derive from business changes.

Your Protection Options to Manage Operational  Changes

Many general liability insurance policies offer protection against product liability. As your business may embark on unknown territory, consider excess liability or umbrella insurance for additional security. This secondary coverage comes into play after the general liability policy limits become exhausted. The additional coverage can shield your business from the financial consequences of large losses that exceed primary insurance coverage.

Product liability insurance can also help to protect against claims that a product you made or sold caused bodily injury or property damage to someone else’s belongings.

We’re Here to Help with Potential Recession Risks

Now is the time to prepare for an economic downturn. Commercial risks traditionally increase during a downturn. Your business must maintain sufficient coverage in a recession and secure financial protection against potential losses. For additional risk mitigation opportunities or questions about your coverage options, connect with a member of our team

Common Liability Exposures in Harsh Economic Conditions | Property & Casualty https://www.cbiz.com/Portals/0/Images/GettyImages-1013133746-2.jpg?ver=yeR8vbB0pRt1Lp3K8-YrGg%3d%3dRecession-related risks can severely hinder a company’s future. Here are three ways to help manage various risks in uncertain economic conditions. 2023-01-25T18:00:00-05:00Recession-related risks can severely hinder a company’s future.Here are three ways to help manage various risks in uncertain economicconditions.  Risk MitigationProperty & Casualty InsuranceYes