VICTORIA, British Columbia — Companies that outsource any business functions should beware of potential reputational risks that might arise if one of their subcontractors is sued for negligence, one risk management adviser says.

“You can't just hire your cousin to do your snow removal,” said Ian Gold, a partner with the Thomas Gold Pettingill L.L.P. law firm in Toronto, on Tuesday during a session at the 39th annual Risk & Insurance Management Society Canada Conference in Victoria, British Columbia. “You should do your due diligence to make sure they know how to remove snow.”

“Even with the greatest indemnification in the world, there is still reputational risk to consider. Make sure you outsource to the right contractors,” Mr. Gold added.

Companies that outsource also should make sure these business partners have adequate assets and insurance, he added.

“People should spend more time and energy on this issue and making sure the people they are outsourcing to are properly insured” and have the assets necessary to back up any indemnification agreements, Mr. Gold said.

Companies may choose to outsource for a variety of reasons, said Renee Simms, assistant vice president for insurance at RioCan Management Inc., a Toronto-based real estate investment trust focused on retail, who also spoke during the session.

For example, the functions being outsourced may not be one of a company's core business operations, she said, such as snow removal or security at one of her company's shopping malls. Outsourcing also enables companies affected by seasonal fluctuations in business the flexibility to staff up or down as needed without going through the expense of hiring and firing its own workers, she added.

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But with such outsourcing practices comes risks that need to be addressed, noted Antonietta Corigliano, senior director of risk management for Toronto-based food processor George Weston Ltd., who moderated the session.

“You can pass off every risk (associated with outsourcing) for the right amount of money,” said Mr. Gold.

For example, a company could pay to have every contract reviewed and revised by an attorney to ensure it contains the indemnification clauses and insurance requirement, including that of being named as an additional insured, he said.

But to be sure the contractor is living up to its side of the bargain, it may also be necessary to employ someone whose sole job is to follow up on those insurance requirements by contacting insurers to make sure premiums have been paid and to obtain copies of the certificates of insurance that prove the additional insured status has been secured.

Liability claims adjusters have encountered numerous situations when outsourcing contracts between insurers and their subcontractors were outdated and not renewed, affecting the ability to transfer liability, according to Dean Cox, vice president for global corporate at Zurich North America in Toronto, who also spoke during the session.