Risk Transfer and Vendor Liability
Family Entertainment Centers utilize third-party vendors in many ways, whether it be for cleaning, maintenance on equipment and games, or technology and software. When it comes to using vendors, ensuring that your business is protected should an accident occur is paramount. So first, we should answer the question of what “risk transfer” is.
Risk transfer is when a business shifts the financial burden of a potential loss to another entity, most often with contracts and insurance. A common example is if a business you hold a contract with comes to install a new bounce house at your facility. During the installation they cause damage which leads to the bounce house deflating and a child getting injured. Without the proper risk transfer, the cost of the injury and the legal suit to follow could all fall to the FEC, not the vendor responsible.
Vendor Relationships in FECs
Evaluate the types of relationships that you have at your FEC. Do you work with an outside catering service for special events? Do you work with a cleaning crew to keep your entire facility up? What about a team installing new attractions at your FEC?
Each of these vendors creates potential liability exposure even when your business isn’t directly at fault. For example, a catering company could have a refrigeration problem that leads to spoiled food and sick guests. A cleaning crew might forget to place a “wet floor” sign, causing a guest to slip and fall. Or an attraction could be improperly installed, leading to a serious injury. Many FEC owners underestimate how often vendor mistakes can quickly become their problem.
The Role of Contracts in Risk Transfer
Contracts are the most common method of transferring risk and are where you can place the requirements to best protect your business. Every vendor relationship should be governed by a written agreement, not just a handshake deal.
Key provisions to include are:
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Indemnification and Hold Harmless – The vendor agrees to take responsibility and cover legal costs if their work leads to a claim.
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Additional Insured Status – Extends the vendor’s insurance coverage to your FEC.
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Certificates of Insurance (COIs) – Proof that insurance exists and is active.
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Coverage Limits – Ensures vendors carry adequate levels of liability and workers’ compensation coverage.
Please be sure you review all legal contracts and requirements with your legal counsel before finalizing.
Insurance Considerations
Even with strong contracts, the right insurance requirements are essential. At a minimum, vendors should carry general liability insurance to protect against bodily injury and property damage, and workers’ compensation insurance to cover injuries to their own employees.
Always request and verify certificates of insurance, and don’t just collect them once set up a system to make sure policies don’t expire unnoticed. Requiring vendors to name your FEC as an additional insured adds another layer of protection, ensuring their policy responds to claims involving your business.
Another common mistake is assuming your FEC’s own insurance will always step in. But exclusions, deductibles, and claims history all matter. If you rely solely on your own coverage, you risk paying thousands in deductibles, raising premiums, or even facing non-renewal from your carrier if you have continuous claims. If a loss falls into an excluded category, now the cost of this loss is covered by your balance sheet. In short, your policy is there for your exposure, not to pay for vendor negligence.
Practical Steps for FEC Owners/Managers
Risk transfer doesn’t need to be overwhelming. Here are a few practical steps to get started:
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Create a vendor risk management checklist.
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Work with your insurance advisor and legal counsel to review all vendor contracts.
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Track and update COIs regularly to ensure coverage is current.
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Train staff so they understand why vendor compliance matters and can help enforce requirements.
Conclusion – Proactive Risk Transfer Saves Money and Headaches
At the end of the day, risk transfer is about protecting your FEC, your employees, and your guests. Vendor mistakes shouldn’t become your financial burden—and with contracts, insurance requirements, and certificate tracking, they don’t have to be.
By taking these steps, you can keep the fun in your facilities while keeping unnecessary risks out.
