Managing Corporate Mistakes

Mistakes happen.

This is an unfortunate fact of life— no matter what you are doing, or where you are, errors can and will occur. When it comes to something like cooking dinner, an error isn’t the end of the world; your food is probably just not going to taste very good.

But making a mistake at your job can be far more costly.

This is a real concern for companies in many industries. Even the most experienced and long serving employee can forget to file the correct paperwork, or amend a contract with a needed clause. Unfortunately, when it comes to businesses, making a mistake can lead to significant financial consequences - especially if a client or customer has experienced a loss as a result of that error.

Simply dealing with the accusation of a loss can be a costly and time-consuming process; requiring resources which could be better spent on continued operations, and furthering the aims of your business.

How Corporate Mistakes Occur

Corporate mistakes can occur for a variety of reasons. Depending on the industry in which the business operates the type of mistake that could be occurring may be extremely varied.

For example, an architect might have mislabeled plans leading to a delay in construction. That delay will cause the contractor to lose money while the problem is being addressed. The error was caused by the architect, so the contractor would have a claim that the architect caused them to lose money. But mistakes are not just limited to architects a financial advisor could provide advice that proves “harmful” to a client – in that the client loses money.

While most financial services products are sold on the basis that losses are possible, an omission of relevant data by a financial advisor (prior to a customer purchasing a product) could be considered enough of a mistake to hold them liable for any resulting losses stemming from that purchase. In the case of financial advisor this is a nightmare scenario, as the losses could be conceivably in the millions - if not more.

Mistakes in business can occur for myriad factors; whether this is simple inattentiveness, as would be in the case of an administrative worker failing to process renewal documents which got lost in their desk due to an inefficient filing system, or outright malice as would be the case with a salesperson lying to a customer about a product, there is no single type of error which companies need to be wary of. With this in mind, and understanding that at some point a business will encounter a mistake, error, or omission how then should companies manage their risk regarding that eventuality.

Dealing the Fallout of Corporate Mistakes

Understanding that mistakes can occur is critical to being prepared and efficiently managing their aftermath. The mistakes that impact different businesses are going to look very diverse depending on the type of industry in which the business operates.

As the nature of business mistakes is vast there is no simple “one-size-fits-all” solution to managing or navigating those risks. But there are a number of Insurance products that can assist with aspects of the perils facing any given company.

Public Liability Insurance

Think about a situation where the signage outside an office is weakened from a weather event—let’s say a typhoon or a black rainstorm warning. If the signage is weakened enough that it falls and causes damage to a pedestrian, a car, or a delivery on the street, then the business owning that sign is likely going to be held liable for any of the losses caused.

In Hong Kong, a city with a plethora of street signs and other large, outdoor advertising, this is a very real risk.

Public Liability Insurance, also known as Third Party Liability Insurance, exists to manage situations like this. Where a business has taken all reasonable steps to prevent a risk from occurring, but the risk has happened and caused property damage, bodily injury, or death to a 3^rd party, this type of insurance exists to manage any resulting financial liability.

However, mistakes (and the losses associated with those mistakes) could happen because of alleged negligence.

Professional Indemnity Insurance

When a company is alleged to have made a mistake that causes a financial loss, either through a simple errors and omissions, or outright negligence and malfeasance, public liability insurance is not going to be very helpful. In the case that a business is accused of errors and omissions in their work then a professional indemnity and liability insurance plan is going to be the solution to assisting with any legal fees or restitution that may be required.

Most professional indemnity insurance products in Hong Kong will provide coverage against an extremely wide definition of claims. This ensures that businesses are adequately protected no matter what actions are undertaken by their employees. Should a company experience a claim that a customer has received a loss as a consequence of doing business with that organization, then professional indemnity insurance is in place to offer assistance with legal fees and financial judgments if they are needed.

However, it is important to note that while professional indemnity insurance does offer an extremely broad umbrella to an array of different professions, it is not all encompassing.

Director’s and Officer’s Insurance

While ordinary employees can be expected to make a mistake, the directors and senior officers of any company are usually held to a higher standard than the average worker.

Further to this, a company’s senior directors and officers will often be responsible for some of the most sensitive aspects of a business. From a breach of trust, misstatements, defamation, and breaches of duty, to violations of the company’s ordinance or Sarbanes Oxley Act, failing to uphold your duty as a responsible officer or senior director of most companies can lead to serious consequences.

Although professional indemnity may be suitable for a line-worker, allegations towards senior directors and officers are going to require additional protection due to the (often) sensitive nature of their work. In Hong Kong there is normally a “catch all provision” on this type of insurance, which will provide for any matter claimed, against any individual, as a result of their status as a senior officer or director of a company.

This means that a Directors and Officers insurance policy, while being just as broad as professional indemnity coverage, is actually targeted towards the specific needs of corporate decision makers. From whistle blowing, through to hiring decisions which may be questionable, D&O insurance in Hong Kong can go a long way to affording a business with the security it needs when a professional indemnity policy is not sufficient.

Protecting Your Business from Errors

No matter what industry and organization exists in it is important that risks are adequately managed. Unfortunately, human error is one of the biggest risks facing every business in the world today. Although systems and processes can be put into place to manage and mitigate mistakes, errors will impact clients. When they do, depending on the extent of the loss, the financial consequences to the business could be catastrophic.

Understanding what risks face a business is a great first step to ensuring that the safety net is created to mitigate negative outcomes. From property damage to malfeasance, it is important that all businesses in Hong Kong do their due diligence and evaluate the portfolio of insurance products that would best help them overcome future obstacles.

The expert insurance brokers at CCW Global are able to assist organizations of all sizes in creating the perfect insurance portfolio. Our independent advisors are experts in helping key decision makers understand where they are most exposed. As a full-service brokerage, we are able to benchmark coverage solutions against market alternatives and provide granular insight that will enable your business to efficiently protect itself.

Contact us today for a free consultation about Corporate Risk Management in Hong Kong.

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