Risk Management Under Trial

In an era when anyone can sue anyone for anything, can an individual seriously argue that risk management is in some way optional and not really necessary?

We often hear the expression: “Anyone can sue anyone for anything.” Once a legal claim is filed, it is up to the courts to decide whether or not the case has merit. If the Court finds no merit, a case is “thrown out of court.” But when case is dismissed, costs are still incurred. It’s just that the costs are less than if the case were allowed to proceed.

RISING COSTS

It is difficult to forecast not only the dollar value of liability losses, but also their overall impact on the organization’s balance sheet. Physical property has an established replacement cost. But what will an allegation of wrongdoing cost the organization? External costs include the costs to defend, maybe the costs of an injunction, court costs or possibly an out-of-court settlement to end the proceedings. Beyond these, there is one internal cost that can’t be discounted: the cost of the time it takes senior employees’ to collect evidence, gather documents, producewitnesses, review written and electronic correspondence, develop defense strategies, attend depositions and testify in court.

In addition to affecting an organization’s direct financial and internal costs, an allegation of polluting the environment, fostering an unsafe work place, manufacturing a defective product or inadvertently releasing personal information can also cause serious damage to an organization’s reputation. Such cases can take years to proceed through the courts; a “not responsible or not guilty” verdict many years later can’t always repair the damage done by a well-publicized allegation.

Injury awards in Canada continue to escalate at an alarming rate. According to the IBC, injury costs in Ontario have soared from an average of Cdn$20,000 in 1993 to Cdn$36,000 in 2003. In one eastern province, the cost of injury claims increased by 42% from 2003 to 2004.

Ontario set a new bar in 2004 for costs associated with a serious brain injury case, involving the serious brain injury to an infant. The injuries were catastrophic and left the claimant in need of 24-hour attendant care. The claimant was 19 years old at time of trial. The trial judge, supported on appeal, allowed an amount for all types of damages claimed, including the cost of past and future attendant care. The case was settled for more than Cdn$10 million, plus costs.

More recently, an Ontario jury awarded a 10-year-old boy Cdn$13 million in damages and interest to compensate not only for the brain injury he suffered as a result of a fall, but to also provide funds for his future attendant care. The young boy was two-years-old when he fell out of an apartment window.

LIABILITY: JOINT AND SEVERAL

As damage awards increase, the danger of being held jointly and severally liable takes on greater significance. A plaintiff’s lawyer only has to prove 1% liability against a deep-pocket defendant to recover 100% of the plaintiff’s damages from that defendant. David Boghosian of Boghosian and Associates writes:

“At common law . . . to be held jointly and severally liable, each defendant must be found to be the effective cause of the entire loss suffered by the plaintiff….

“If one of the defendants is unable to pay the share of damages allotted to them, the other defendant(s) are responsible for the entire loss sustained by the claimant.

“It is argued that joint and several liability encourages plaintiffs to unfairly target defendants who are known or perceived to be insured or solvent. Plaintiffs decide when, where and whom to sue, therefore, plaintiffs will sue persons who they believe afford the best opportunity for recovery. It has also been suggested that the likelihood of having to pay an entire damages award puts pressure on deep pocket defendants, such as professionals and large corporate entities, to avoid protracted, expensive litigation by settling for amounts that may be excessive.”

Most provincial jurisdictions in Canada provide for joint and several liability when two or more defendants are responsible for the plaintiff’s damages.

Organizations can only protect themselves through diligent and well-documented risk management practices. However, in serious injury cases, even the best risk-managed efforts may not produce the standard of “perfection” that our courts often seem to think is achievable in the real world.

Corporate governance, corporate reputation, financial statement stability, legislation and our legal system mandate that all risks be identified and managed. The most important element in any risk management program is still the safety of the individual. Our courts’ empathy is towards the injured party and not towards the defendants.

RISK MANAGEMENT SOLUTIONS

A good risk management program not only focuses on safeguarding physical assets but also takes the necessary steps to prevent injury to others. Preventative measures include statutory compliance, lawful conduct, fulfilling contractual obligations and conducting the organization’s business in a prudent manner. Procedures must be written and followed consistently across the organization. In addition, the organization must offer written documentation that shows these procedures were followed. Many good risk management programs do not succeed in court because they lack proper written documentation. The organization needs to keep in mind that it can be many years before the dispute goes before the courts. Memories fade, employees leave, but written documentation remains.

In one example, a municipality had comprehensive and well-documented procedures. Road/sidewalk crew cards had clearly marked sections indicating completion of sanding, salting and plowing in specific weather conditions. A serious sidewalk injury occurred March 1997. The case was heard in May 2004. During the court proceeding, the investigation of facts confirmed that only the “plowing” box on the crew card was ticked. At trial, the operator testified that he had performed all three functions and it was his custom to check “plowing” at the end of all the steps. The judge found that since “salting” and “sanding” were not ticked, he could infer the steps were not completed and the weather conditions called for all steps. The judgment was in favor of the plaintiff. It’s not enough to say you did it: you must be able to prove to the satisfaction of a court that you did it. Oral evidence will not defeat written evidence.

A risk management program not only identifies, but also offers practical solutions to aid in mitigating the multitude of liability risks facing organizations. The administration of the program requires constant direction and attention. In addition, the risk management function needs to be coordinated throughout the organization, encompassing all departments and all levels of employees. The most successful programs are driven by management, from the top down, with employee input from the bottom up.

Implementation and maintainence of the program come with a price tag. Premises, machinery and equipment must be maintained to ensure the safety of all individuals. Employees must be properly trained; the training must continue to be upgraded as required. Standards of quality must always be strictly enforced. Personal information of customers and employees must be secured. The rules of corporate governance must be followed.

Although these associated costs of program implementation and maintenance are an investment in the prevention of future liability claims. As stated above, litigation is expensive; for every legal action that is prevented or dismissed, capital is retained by the organization.