Business Owners and Barefoot Insurance

Last month I wrote about Business Owners and “Trust”, looking at a lot of negligence lawsuits and discussing a user comment regarding the cost and time of a possible lawsuit from a barefoot injury (while completely ignoring possible lawsuits from all sorts of other footwear injuries).

A small-business owner and friend has pointed out to me that it is the insurance companies who spend the time and money. Here’s what he told me.

Before I get to that, I’ve seen a few of insurance policies, and I’ve talked to people who have seen a lot more. None of them have any requirement that businesses require that their customers wear shoes.

So, here is what my small-business owner friend said:

Virtually every business has liability insurance. As a business owner, I know that it really makes sense to have liability insurance, although I’ve never had to use it. And on top of that, lenders and landlords generally require it. This requirement is written into the documents for loans, mortgages, lines of credit, and leases. They protect the lender as well as the borrower, the landlord as well as the tenant.

This being the case, if/when a business is sued the matter is handled by their insurance company. The insurance company decides whether or not to simply pay (settle) a claim or to defend against it in court. And if they decide to go to court, they provide the lawyers and legal support staff to develop the defense and argue the case. If they choose to settle the case or lose in court, the insurer is the one who actually has to fork over the money, up to the policy limit. Liability policies, even for small businesses, typically provide coverage of at least a couple of million dollars, if not more, which would be way more than enough to cover any type of minor accident claim.

Yes, the business owner and any witness employees could be called upon to testify, or more likely give depositions, and this would take a little bit of their time. But the major costs of legal defense and actually paying the injured party, if it comes to that, are born by the insurance company. I guess it’s possible that a large settlement or a number of claims over a short time period could result in the business’s premium being increased, but that potential cost is uncertain and relatively small.

So any business owner or manager that suggests or implies that they would face huge legal expenses and possibly a huge settlement cost if a customer is injured and sues are probably almost always either mistaken or not being truthful.

The next question that comes to mind is, but would any incident (barefoot or not) raise rates? And here is his reply:

In my experience with general business insurance, how claims affect rates really varies from one situation to another and from one insurance company to another. Fortunately I’ve never had a liability insurance claim. My understanding, based on discussions with insurance agents, is that what gets the most scrutiny is “loss history.” Having a number of claims, especially over a short time period, raises red flags and can make it difficult and/or more expensive to purchase insurance. The isolated random incidents that occur once in a while are pretty much factored into insurance rates using actuarial statistics. A pattern of several similar incidents, especially if it appears that they could have been prevented if the management of the business had been more diligent about safety considerations, would probably cause problems.

The insurance industry collects and analyzes huge amounts of data on every sort of factor that may impact the probability of incurring a loss. It’s an industry based on quantifying risk. If the insurance industry were able to statistically determine that allowing barefoot customers in a store or restaurant would increase the probability of losses (claims) they would offer discounted rates for businesses with anti-barefoot policies or require such policies as a prerequisite for providing insurance coverage. If the insurance industry does not provide such discounts or requirements, you can be sure that there is no evidence to form a factual basis for anyone’s concerns that barefoot customers increase the risk of claims.

So there you have it.

[Note that this friend is also a barefooter, so he made a point of asking the insurance agents specific questions about this issue, and thus probably has found out a lot more than the average business employee who might confront us in a store.]

Those who use the insurance excuse probably know about as much about how their insurance works as they do about the safety of going barefoot. It’s just myth and excuse piled on top of myth and excuse.