You wouldn't play football without pads, would you?

How to protect your company when expanding your product and service offering
By Matthew Johnson
February 8, 2010
RETAIL : LEGAL
There is a saying: “If you’re going to panic, at least panic constructively.” Now is not a time to panic. Challenges exist, but we are starting to see less factors slowing the glass and glazing industry.
While this is great news for all involved, concern remains for companies that have responded to the slowdown by expanding their scope of work to include new markets, products or services. By doing so, they may have unintentionally increased their risk and liability exposure. Let’s look at two considerations that every company—new market or not—should regularly review: insurance and compliance.
Any time a company looks to increase its market presence, it must fully appreciate the potential risks and liabilities. While every glazier will have a different set of factors to consider—customer base, service offerings, etc. —there are some sound ‘best practices’ that all companies should follow.
First, all companies must regularly assess their insurance needs. Insurance is like the padding that helps insulate your business from the brutal world of legal claims. If a company takes a step beyond its market and looks to expand its services, it is essential that the insurance program comes along, too. Regular assessment of insurance from a risk and operations standpoint allows companies to maximize value for the policies they purchase.
For example, a company’s decision to expand its business model can impact available insurance coverage. Insurance programs are based on assumptions relating to the type of work a company performs. Insurance companies use business modeling approaches, combined with historical data and complex statistical formulas, to make an assessment of the potential risk presented by a company’s operations. A premium is issued using that potential for risk. However, what happens if a business model changes? The premium could change too, and perhaps more dire, the availability of coverage under an issued policy. If an insurance company believes a business model change is a substantive departure from the issuing terms, it might try to exclude coverage for any claim involving a ‘new’ business.
Beyond issues of coverage, consider even more basic questions: Does the company have enough coverage under its primary policies to cover its new and current business? What about excess/umbrella insurance? Does the worker’s compensation carrier care about the line of business and the expansion of labor relating to the work? Are different types of insurance coverage required beyond what a company currently carries in an insurance program? Is a retroactive premium or retention impacted by claims expenses for new work? Amount, value and type of insurance are key considerations.
You wouldn’t drive a car with a flat tire … too far anyway
Companies also face evolving issues of compliance, standards and warranty that must factor into any calculation of risk exposure. Glaziers are bound to run into various compliance issues—both project-specific and governmental. If a company fails to educate itself about applicable standards and business requirements, it puts itself at risk. When a company is not running on all cylinders, risk and liability concerns take on greater significance.
Assume a residential window distributor decides to enter the installation business. This company may know window sales, but has it familiarized itself with all applicable remodeling codes in its area? Does it need a new business license? Has it educated itself regarding Environmental Protection Agency scope of work requirements for addressing the possibility of lead in remodeling work? What about new sustainability and energy requirements for remodeling? Failure to meet any applicable standards could serve as the basis for governmental penalties, contractual damages or even a refusal to pay.
Change the scenario: Assume a company decides to start installing commercial glazing systems. Contractual requirements and specifications can be gospel on these projects. Failure to provide competent returns on BIM software input, air transmissions or glass coatings can delay payment or expose a company to claims at a later date. Jumping into a service offering without education and project-compliance concerns also can greatly increase overall liability potential.
In both of these scenarios, the considerations of risk and exposure from these expanded service offerings go beyond legal-style claims. Your company’s goal, just like your competitors, is to maximize recovery for projects and work performed. If you spend time fighting collection on a contract or correcting compliance matters, you’re taking time away from another project or sale. To truly appreciate the risk associated with expanding a business model, the analysis must go to the business itself and move beyond the limited realm of formal claims.
Turn down the panic; turn up the common sense
Insurance and compliance are only two of the many items related to expanding a company’s scope; however, they touch nearly all of a company’s operations and therefore serve as good touchstones for a broader review of risk and exposure. Because risk evaluations are about avoiding claims and boosting work, all companies have an opportunity to assess their operations. When a company takes a hard look at itself, takes appropriate precautions and educates its employees, it can avoid a panic response and make targeted moves to maximize the coming recovery.

The author is a member of The Gary Law Group, a Portland-based firm specializing in legal and risk issues facing manufacturers of glazing products. Write him at matt@prgarylaw.com