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Limiting Liability: Landlords and Tenants Work Together to Create Safer Shopping Centers

By María Bird Picó

Declining sales and property values and a generally sour economy offered developers little scope for revenue growth at the end of 2009. But U.S. landlord Developers Diversified Realty saw one area, at least, where it could cut costs: liability insurance. “We began asking ourselves how we could reduce costs, seeing it not as a problem but as an opportunity to reduce the number of incidents that occur within our portfolio and reduce the insurance cost to the tenant,” said Catherine Kroll, the firm’s vice president of risk management.

Snow, of course, brings an increase in slip-and-fall claims, as does rain. But so do recessions. Google the phrase “slip and fall,” and the names of thousands of ambulance-chasing lawyers worldwide pop up.

Given that Developers Diversified owns and manages 570 retail properties across 41 U.S. states plus Canada, Brazil and Puerto Rico, the chance to make a significant dent in its liability insurance was too tempting to pass up, especially at the depth of the recession. So the company launched a program last year to make its centers as accident-proof as humanly possible. And to achieve that, the firm called upon every human working at its centers.

First the company reviewed all accident claims for the previous three years, and then set goals for each property for the following year. To encourage vigilance about potential hazards, the company established a system by which employees at each property could earn financial rewards commensurate with the reduction of claims a center achieved.

“Increases in our salaries and hourly wages are based on our contribution to our company,” said John S. Kokinchak, senior executive vice president of property management at Developers Diversified. “When employees recognize this [risk management] discipline is one of the measuring factors, all of sudden they tie it to compensation.”

Developers Diversified says most claims at enclosed malls involve accidents in the parking lot; on curbs and sidewalks; on slippery surfaces; and on escalators and in elevators — in that order. At open-air centers, the order of accident claims is for parking lots; curbs and sidewalks; and car stops and speed bumps.

To help train employees, Developers Diversified used Steven Di Pilla’s book “Slip, Trip, and Fall Prevention: A Practical Handbook,” which instructs readers to scrutinize sidewalks, curbs, curb cutouts, drainage grates, tire stops and even speed bumps.

The signs of heightened awareness are very evident at Developers Diversified centers today. Escalator entrances and exits are painted bright yellow, and the escalators themselves are supervised to prevent children’s playing on them and to ensure that everyone using them wear footwear.

The wheel stops in the parking lots are inspected regularly, as they frequently shift from the repeated impacts from cars, or the rebar starts to protrude from the top. When moved, “it not only becomes ineffective as a wheel stop, but becomes a potential trip hazard in a walking lane,” Kokinchak said. “It is important that our managers and security detail know that when they walk the parking lots in the morning, those are the things they need to look for.”

During visits to Developers Diversified shopping centers, Kroll walks the properties with mall managers to identify hazards. She has a keen eye for any problems that may be lurking for high-heel-wearing women, say, or stroller-pushing parents. “When they look at potential problems through my eyes, they see things differently,” Kroll said.
It was easy to get security to be more aware of the financial impact of reducing claims, says Kokinchak. “The most difficult was to get our employees to look at the properties with a fresh set of eyes every day, since you are changing human nature and habit.”

Developers Diversified has taken the opportunity afforded by redevelopment and renovation to eliminate any construction materials that could lend themselves to accidents. The firm installs nonslip floor tiles and uses slip-resistant paint in its parking lots. “Bricks and pavers are nice-looking products, but over time the base wears away and they tend to sink and shift,” said Kroll. “That is no longer our product of choice for sidewalks and entryways. We use concrete and make sure it has a slip-resistant finish to it. We use stamped concrete when appropriate, to give some design element.”

The results have been dramatic, with the number of liability claims across the firm’s U.S. portfolio shrinking 27 percent last year. In Puerto Rico, claims decreased by 32 percent. The reason is that most of its U.S. malls are open-air — free of the escalators, elevators or food courts in which many accidents happen. In Puerto Rico the firm has 15 enclosed malls, with all those hazards.

The company declines to say how many claims it receives each year or to spell out their cost. As for insurance costs, the impact of the reduction in liability claims has yet to be seen, because rates are based on accidents over a number of years, executives say. But if rates do come down, it will benefit tenants, who pay mall insurance premiums through their common-area-maintenance charges.

This year the company has set a new target to reduce accidents and claims, says Kroll, and it is using quarterly Webinars to educate employees. “The Webinars are an opportunity for the property managers to share their ideas and questions,” she said.

After all, the economy might be improving now, but that is no reason to let up on liability costs.
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