18 Tips for Reducing the Risk of a Lawsuit (Part V – Basics of Risk Management)

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This is the final part of a 5-part series of ways to reduce the risk of a lawsuit. This part focuses on guidelines dealing with the basic fundamentals of successful risk management.  Each subject encompasses an immense amount of subject matter.  See the sources cited for more information.

15.       Know and Adhere to Industry Standards[1]

Professionals are held to a standard of care that is deemed reasonable and any conduct that falls below that standard of care may leave the club liable for injuries or damages. Industry standards are generally developed and published by professional organizations. Standards of care relevant to health clubs have been developed by the American College of Sports Medicine (ACSM) and by the National Strength & Conditioning Association (NSCA). Standards give guidance in such matters as proper supervision, instruction, facilities, and equipment. Read the NSCA standards at http://www.nsca-lift.org/Publications/standards.shtml#RECORDS.

Realize, however, that although one is safer if one adheres to the standards, strict adherence does not guarantee freedom from liability. Even standards do not cover all aspects of the required reasonable care.  For instance, the duty to inspect the facility exists in spite of the fact that the 1997 ACSM standards contained no standard for this. Management should be knowledgeable of standards and make every effort to meet them.

16.       Use Insurance to Transfer your Risks[2]

For an appropriate fee, a club can transfer many of its financial risks to an insurance carrier. Some important types of insurance include: 1) liability (including umbrella liability), 2) property, 3) business income, and 4) workers’ compensation. Liability insurance protects from clients’ claims that your negligence resulted in injury. Property insurance protects you against hazards such as fire and tornado damage to your building. Business income insurance replaces your income following property damage while the building is under repair. Workers’ compensation is a required insurance you must purchase to cover employees injured on the job.

Be certain your broker 1) represents a reputable company, 2) is someone you trust, and 3) is familiar with your type of business. Insurance coverage is crucial to all business owners, whether club operators or independent contractors.

17        Use a Waiver to Transfer your Risks[3]

A waiver is a contract by which a client releases a club from liability for injury in exchange for permission to use the club facilities. In most states, a well-written waiver voluntarily signed by an adult will protect a club from liability for injury – even if the injury was due to the negligence of the club. Waivers are not enforceable in Montana, Virginia, and Louisiana; there is also some question of their effectiveness in Wisconsin, Connecticut, Hawaii and Arizona. However, waivers may serve to warn clients of the risks in all states.

Although waivers have limitations (e.g., with minor clients in many states), the waiver is one of the major risk management tools. It is crucial, however, that they be well-written, properly administered, and safely stored for easy retrieval. Finally, a longer (one or two pages), stand-alone waiver is much more likely to provide broad protection than is a one or two paragraph waiver included within many membership contracts.

18.       Develop and Implement a Risk Management Plan[4]

A risk management plan is an effort, preferably by selected management and staff members, to systematically analyze two types of risks faced by the club. The stability of the club depends upon minimizing both the programmatic risks, those dangers or risks presented by the activities of the club (e.g., injury risks present in weight lifting, aerobics, or swimming) and the financial risks, those risks that present a threat to the financial soundness of the club (e.g., risks such as fire, theft of money or equipment, and lawsuits resulting from the programmatic risks).

The function of the risk management plan is to identify risk, estimate the degree of the risk, and to determine how best to control the risk. The options are to eliminate the risk (by eliminating the activity – no trampoline), to transfer the risk (purchase insurance, require a waiver), retain the risk (budget for potential loss if the risk is minor), and reduce the risk (see guidelines 1-15 for ways to reduce risk). Obviously, risk reduction should be primary and used in conjunction with the transfer and retention approaches.

You are encouraged to examine your operation in light of these 18 guidelines. You are probably already doing some of these, but in regard to others, you may be weak or lacking. Improvement will require effort, but the reward will be peace of mind, safer clients, and a smaller likelihood of litigation.

[1] Eickhoff-Shemek, JoAnn. “5.21 Standards of Practice,”  Cotten, D.J. & Wolohan, J.T. Law for Recreation & Sport Managers (4th ed. 2007).  Kendall-Hunt Publishing Company, Dubuque, IA.

[2] Cotten, D.J. “5.25 Managing Risk through Insurance,” Cotten, D.J. & Wolohan, J.T. Law for Recreation & Sport Managers (4th ed. 2007).  Kendall-Hunt Publishing Company, Dubuque, IA.

[3]Cotten, D.J. & Cotten, M.B. Waivers & Releases of Liability (6th ed. 2007). www.Lulu.com.

[4] van der Smissen, B. Chapter 23-25. Legal Liability and Risk Management for Public and Private Entities (1990). Anderson Publishing Co.: Cincinnati.

Dr. Doyice J. Cotten is professor emeritus in sport management at Georgia Southern University and has a consulting business, Sport Risk Consulting.  He is the coauthor of Waivers and Releases of Liability. The 6th edition (2007) is now available and provides a complete and up-to-date source of:  1) state waiver laws, 2) the latest information and rulings regarding waivers for adults and minors, 3) guidelines on how to write waivers (including examples), and 4) a full explanation (and examples) of a Participant Agreement. The book is available from three sources: 1) from the author ([email protected], phone: 912 764-4848); 2) from www.lulu.com; 3) from IHRSA (in PDF only).