Risk Insider: Shep Tapasak

Supplier Risk and Downstream Liability

By: | December 11, 2017 • 2 min read
Shep is Managing Principal for Integro, and Healthcare Practice Leader for the Southeast. Shep has 25+ years of experience in property/casualty. He is passionate about specialization and innovation. He can be reached at: [email protected]

In the insurance business, the term “deep pockets” is tossed around more frequently than an antipasto salad. In my opinion, the term “downstream liability” is a better way to describe how risk costs can flow to a party irrespective of the degree of fault.

Downstream liability risks are the risks of inheriting liability from the more culpable party. Laws, which vary by state, can sometimes increase these risks, and quite often, downstream liability flows from suppliers and vendors.

Vicarious and Downstream Liability Contrasted

Vicarious liability is a legal doctrine that, in some instances, makes a party responsible for the actions or inaction of a culpable party based only on the relationship between those parties. In other words, the “duty of care” is imputed to a third party precisely because of their relationship to the culpable party.  Employee-employer and child-parent are common examples of special relationships that can yield vicarious liability.

Sources of Downstream Liability


  • Product Defects. Defects in a vendor’s product that impact the safety of the subsequent service or product delivered can often result in liability being assigned and/or apportioned. For example, a manufacturer of medical devices produced scopes with a design flaw that made them highly susceptible to bacterial contamination. While the device manufacturer was responsible for much of the settlements, many hospitals that used the “scopes” during surgical procedures were also subject to significant costs and settlements.
  • Catastrophes and Disasters. Highly publicized events that result in multiple injuries or deaths can lead to lawyers placing focus upon how to find enough assets to adequately compensate victims of the tragedy, regardless of the respective degrees of negligence. An example of this would be the Station Nightclub fire in Rhode Island (2003), which injured or killed more than 200 people. In this case, there were 65 defendants involved with the $176 million settlement. The nightclub, headlining band and others responsible for the pyrotechnics that started the fire paid a very small fraction of the settlement. Beverage distributors, TV and radio stations, and the manufacturers and installers of the foam that enhanced acoustics shouldered the majority of the settlement dollars.
  • Environmental/Pollution Legal Liability. There are numerous claims where vendor work has led to substantial liability for property/business owners. Many of these instances involve indoor air quality issues arising from construction activity and defects, as well as HVAC installation and maintenance. In one of the more extreme examples, the deaths of three young cancer patients within a month of each other at a hospital in Tampa, Fla. were alleged to have resulted from toxic mold released from dust generated during a construction project.

There are many other downstream exposures, which might not involve bodily injury, but can result in unforeseen third-party related costs. Timely examples include: vendors that misuse client data; downstream reputational risk; and staffing agency exposures.


The risks associated with suppliers and vendors can result in significant, unanticipated costs. Risk management programs should include identification and analysis of exposures that could lead to downstream liability costs. These risks can be mitigated, but it is essential to go well beyond supplier audits and certificates of insurance.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]