The Dovetail: Combatting Costly Litigation: How Lumber Businesses Can Stay Ahead

Combatting Costly Litigation: How Lumber Businesses Can Stay Ahead
John Kennealy, VP – Claims

Social inflation and nuclear verdicts, where juries have ruled against business owners, have created a difficult environment for lumber business owners. Any mistake or accident can lead to massive losses that could cause temporary or permanent business shutdowns. This hasn’t always been the case in the industry, but recently, changing social attitudes seem to be leading to costly verdicts penalizing larger businesses.

Today, it seems many juries are making more emotional decisions against business owners. A claim that may have resulted in only a $20,000 payout previously can now even reach upwards of several million.

What can lumber business owners do to avoid business-altering payouts? Knowing the risks facing the business and emphasizing a dedication to safety are keys to avoiding major claims.

What are the claims?

We are currently seeing several claims trends across the lumber industry. First, we’re seeing a continued rise in commercial auto claims, including rear-end accidents and accidents caused by changing lanes or sideswiping. General liability claims, including both forklift safety issues and more recently, on a smaller scale, asbestos claims, are also on the rise. Lastly, year-over-year construction defect claims are on the rise. Lumber business owners are dealing with increased damage and safety issues coming from defective building materials and structures, and these factors are contributing to losses.

Inflation and supply chain shortages are making matters more challenging. The cost of repairing and replacing defective or broken equipment and structures has risen significantly. We’re also noticing some lumber businesses that haven’t had their property and inventory values confirmed with an insurer for a significant period of time. As inflation continues to cause price hikes, these lumber businesses now likely have a major insure to value problem on their hands. In the event of a loss, the cost to replace product will be even larger due to the rising scale of inflation and likely will not fall in line with their policy limits.

Preventing Losses in Your Business

Safety and awareness are the top priorities for loss prevention. There are a few steps to consider here, including:

• Utilizing technology and data: There’s plenty of technology available in the industry to reduce risk. For example, on the commercial auto side, telematics, continuous motor vehicle records (MVR) monitoring and automatic emergency braking tools are readily available to improve fleet safety. Insureds should consult their broker or insurance company to get an update on the latest safety technology.
• Prioritize Training and Certifications: Regular safety training should be enforced throughout the workplace. Anyone operating machinery should be properly trained and certified. Safety managers should also have a strict schedule for equipment maintenance and training.
• Ensure proper risk transfer: When running installations through subcontractors, ensure your business is named as an additional insured on the subcontractor’s policy on a primary and noncontributory basis. That way, if the subcontractor’s actions lead to a claim, their coverage comes first.

These steps are critical to reducing the chance of an incident at lumber businesses. In addition, insureds should work with their brokers to ensure they have the right coverage for their businesses, so they won’t be hit with any unanticipated losses.

This dedication to safety can make a big difference in the eyes of the jury if a claim were to occur. You don’t want to be seen as prioritizing profit over safety. In the event of a claim, lumber business owners and operators should be sure to document and share their various safety protocols, as well as share this information with their defense counsel and insurance broker as soon as possible.

High severity claims threaten lumber businesses every day. A focus on safety and risk management is key to ensuring your business stays operational in today’s litigious business climate.