Reference no: EM131658209

Question: Although there are more claims for breach of contract than any other category of lawsuits, the dollar amount of damages awarded in tort actions is typically much higher than the awards in contract claims. Furthermore, tort claims are commonplace for businesses. Large companies (those grossing more than $1 billion per year) face an average of 556 pending tort claims and spend an average of $19.8 million on litigation each year. Because of the potential for large damages awards for intentional and unintentional acts, businesspersons should take preventive measures to avoid tort liability as much as possible. Remember that injured persons can bring most tort actions against a business as well as against another person. In fact, if given a choice, plaintiffs often sue a business rather than an individual because the business is more likely to have "deep pockets" (the ability to pay large damages awards). Moreover, sometimes tort liability exists for businesses when it would not exist for individuals-for example, in situations involving business invitees, negligent hiring or supervision, trade libel, and often strict liability and cyber tort claims. The Extent of Business Negligence Liability A business can be exposed to negligence liability in a wide variety of instances. Consider just a few examples. Is a business that fails to warn invitees that its floor is slippery after a rainstorm liable to an injured customer? Is a grocery store liable when a customer slips and falls on a piece of fruit dropped by a previous customer? What about liability for injuries that occur in the parking lot in front of a business when conditions are icy due to the weather or there is a hole in the pavement? What if a patron falls and is injured due to a defect in the carpeting inside a store? The possibilities are almost endless, but nevertheless a business should try to anticipate circumstances that could lead to negligence actions and take preventive measures. Even the hiring of employees can lead to negligence liability. For example, a business can be liable if it fails to do a criminal background check before hiring a person to supervise a child-care center when an investigation would have revealed that the person had previously been convicted of sexual assault. Failing to properly supervise or instruct employees can also lead to liability for a business. Professionals such as doctors, lawyers, engineers, and accountants have a duty to their clients to exercise the skills, knowledge, and intelligence they profess to have or the standards expected of their profession. Providing anything less to the client or patient is a special type of negligence called malpractice. Liability for Torts of Employees and Agents A business can also be held liable for the negligence or intentional torts of its employees and agents. You will learn more about the law of agency and employment in later chapters of this text (especially in Chapters 24, 33, and 34). For now, it is sufficient to realize that a business is liable for the torts committed by an employee who is acting within the scope of his or her employment or an agent who is acting with the authority of the business. Therefore, if a sales agent commits fraud while acting within the scope of her or his employment, the business will be held liable. Similarly, if a corporate executive posts defamatory messages about a competing firm on the company Web site, the corporation can be held liable.

CHECKLIST FOR MINIMIZING BUSINESS TORT LIABILITY

1. Constantly inspect the premises and look for areas where customers or employees might trip, slide, or fall. Take corrective action whenever you find a problem.

2. Make sure that employee training includes a segment on the importance of periodic safety inspections and procedures for reporting unsafe conditions.

3. Routinely maintain all business equipment (including vehicles) and make sure that the business has complied with any applicable administrative regulations.

4. Check with your liability insurance company for suggestions on improving the safety of your premises and operations. By following its advice, you may be able to lower your insurance premium and ensure that the company will continue to provide coverage.

5. Make sure that your general liability policy will adequately cover the potential exposure of the business. Reassess the amount of coverage annually, particularly if the business has expanded.

6. Carefully review the background and qualifications of individuals you are considering hiring as employees or agents, and eliminate candidates who may increase the business's exposure to tort liability.

7. Investigate and review all negligence claims promptly. Most claims can be settled at low cost without a filed lawsuit, and frequently it is good public relations to do so.