Do Not Ignore Liability Risks

​As an airplane owner I have had the opportunity lately to spend a fair amount of time contemplating liability, and how risk can spread. We are all aware of the two major crashes of Boeing 737MAX airliners with the hundreds of deaths, and the grounding of a substantial portion of the fleet. Financially, the disaster is anticipated to cost billions to the various manufacturers, the airlines, and their insurers.
As a result, owners of private airplanes have been reporting substantial increases in their insurance premiums this year. This makes no sense at a time when private flying accident rates are at historic lows, but the insurers who are facing significant losses from the MAX737 accidents are spreading the cost around. It doesn’t seem fair but things rarely are, and insurance companies need to stay in business.
Covid-19 may be a significant health risk today but in the near future it will likely pose a significant liability risk as well. Grocery stores, sports teams, theaters, schools, manufacturers and even churches who are seen to have negligently allowed the disease to spread on their premises will be at high risk of facing court challenges. With this type of personal injury claim it can be difficult to prove the source of the disease but that won’t stop lawyers and plaintiffs from initiating expensive legal battles.
I asked my legal counsel and was told that the law requires a person or business to act as a “reasonable” person would act in a given situation. Regardless of how you or I feel about social distancing, masks, one-way aisles etc., an increasing number of businesses are taking the position that in a court of law, a judge and jury will likely assume that the most reasonable action is to follow guidance given by local health departments.
All this has gotten me to thinking about the companies we invest in. We have focused on their ability to endure the lockdown by first surviving, and then thriving through the entire crisis. Now I think it is time to take a look at long term liability. For example, I see many people protesting mask requirements at their local big box store. I understand the frustration but I also see that for the business, failure to implement a policy that might be viewed as the “reasonable” thing to do, could expose these deep-pocket companies to huge liabilities. As a shopper I may dislike the policy, but as a stockholder I think I would consider it a wise and necessary business move.
Investors are often forced to separate their personal or political beliefs from their investment strategies. If you are one who holds individual stocks, I would take some time and evaluate how those companies are responding to the current crisis through the lense of long term liability. It won’t do you any good if they make a lot of money during the crisis by running full operations, only to have a future court take much of it away in a class action lawsuit.