What can be done to manage the risk of liability if liability insurance cannot be obtained for a commercial operation?

Using an exculpatory contract or becoming a corporation is a strategic approach to managing liability risks when insurance options are not available. An exculpatory contract, also known as a liability waiver, is a legal agreement that can limit an individual's ability to sue for negligence or other claims. By having customers or clients sign such contracts, the operator can help mitigate liability exposure, as it establishes that the participants acknowledge and accept the risks involved in the activity.

Forming a corporation also limits personal liability. In a corporate structure, the owners’ personal assets are typically protected from business debts and liabilities, meaning that if the business is sued, only the assets of the corporation are at risk, not the personal assets of the owners.

Other approaches, such as forming a partnership or purchasing lower coverage limits, might not effectively reduce liability exposure or protect personal assets. Partnerships can still leave personal assets vulnerable, while lower coverage may not provide adequate protection in the event of a significant liability claim. Stopping the operation, while eliminating liability risk, is generally not a viable long-term solution for commercial operations seeking to continue in business.