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Addressing risk management and insurance for facility managers

By Gil Fried, JD


Although injuries and accidents are always going to occur, various risk management strategies can be used to minimize the potential for injuries and litigation.

Risk management focuses on two major issues: identifying risks and then eliminating or reducing those risks. Identifying risks involves a significant effort to examine current operations and then to systematically generate new strategies and techniques to reduce potential lawsuits. The ECT approach is one strategy to help implement a risk management system. The ECT approach is so named because every element ends with the letters ect.

  • Reflect. A facility manager needs to determine why he is interested in implementing a risk management program. Is the purpose to save money, reduce insurance obligation, run a safer facility, or a combination of these? Another part of the reflect stage is to rank potential concerns in order of
    magnitude and impact. For example, an earthquake is not a major concern on the east coast but could be one of the bigger concerns on the west coast.
  • Deflect. A facility can possibly improve risk management efforts by deflecting liability onto others. This can be accomplished through purchasing insurance that will pay attorney fees and any damages if a claim is filed; inserting clauses in rental contracts that require the renter to have insurance, assume liability, and hold the facility harmless from any claims; and having participants (possibly parents) sign a waiver indicating that they understand the risks of participating in the activity and will not sue the facility if they are injured while participating.
  • Detect. A facility manager needs to learn how to identify potential concerns or retain people who are knowledgeable in risk management. For example, the National Fire Protection Association requires larger facilities to conduct annual life safety inspections. Such inspections identify numerous potential concerns.
  • Inspect. It is not enough to identify risks and dangerous conditions; someone has to physically examine the facility and its policies to see if there are any hazards or if any area needs to be repaired.
  • Correct. Once an area or object or situation has been identified as hazardous, someone has to repair the hazard. This may require completing a work order or other means of communicating the needed repair to the appropriate individuals.
  • Reinspect. The mere fact that a work order has been completed does not mean that the repairs or required actions were undertaken or were undertaken correctly to resolve the hazard. Thus, the area needs to be reinspected to make sure it is safe.
  • Reflect. After a set time such as a year, or after an event, the entire risk management process needs to be reevaluated to determine if it was effective and what steps can be taken to make it more effective in the future (Fried, 1999).

Risk management entails more than just following specific elements from an easy-to-remember slogan such as “ECT.”. Risk management also entails training employees to appreciate and apply risk management principles on a daily basis. Employees need to live risk management. When a napkin is on the floor, a well-trained employee will pick it up even if trash collection is not part of her job, since someone can slip on the napkin if it is not picked up. Thus, risk management flows throughout a facility and its staff and needs to be internalized in order for it to be effective.

In addition to risk management strategies, there are numerous types of insurance policies that a facility manager needs to consider besides the traditional comprehensive general liability policies that cover basic business losses such as fire or liability for injuries on premises. Other necessary policies may include the following:

  • Workers’ compensation
  • Automobile
  • Business interruption
  • Alcohol sales
  • Employment practices liability insurance (EPLI)

There are also unique policies that can be purchased for a single event or for rare occurrences. Recent policies have been written to protect against such losses as natural disasters that in the past may not have been covered losses. For example, snow-removal insurance policies protect businesses if a snowstorm makes a business inaccessible for more than a set number of days (Yarborough, 1998). In 1995-1996, Logan International Airport purchased snow-removal insurance; the policy was written to activate after 44 inches (1 m) of snow had fallen. The policy provided a $50,000 payment to the airport for every inch over 44 inches up to 84 inches (2 m). More than 100 inches (2.5 m) of snow fell that winter, and the administrators at Logan were considered geniuses since their $400,000 investment in the snow-removal insurance brought a $2 million return from the insurer. The insurance was necessary to help cover the costs associated with snow removal, lost parking, and lost concession revenue due to fewer passengers.

Such narrowly focused policies can be crafted to address or exclude specific circumstances. In the case of snow-removal insurance, the policy can specify what lost business will be covered, during which dates, whether snow removal is covered versus just lost business income, and which days will be specifically addressed as key business loss dates. For example, a football stadium may want snow-removal insurance only for Sundays when home games are played against opponents with a win–loss record over 70%. Any terms can be included in an insurance policy if it is negotiated and accepted as a valid contract.

This is an excerpt from Managing Sport Facilities, Second Edition.



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