Small Business Horror Stories
Capital Loss on Capital Gain
December 16th, 2016
A claim was made against an insured accountant by a former client. The client alleged that the accountant failed to properly include the capital gain in their tax returns. As a result, the client alleged that they suffered a loss of $221,211.26 (comprising capital gains plus tax and penalties paid) plus interest and costs. It was determined that there was some exposure on the part of the insured accountant, so the claim was settled on a commercial basis at mediation for the amount of $180,000 plus costs.
A $45K slip
November 24th, 2016
A graphic designer faced a huge lawsuit when a customer visiting their premises fell down a dip whilst walking through a doorway, sustaining a hair-line fracture and ligament damage to her left foot. The customer commenced legal proceedings against the graphic designer for the cost of the medical treatment incurred for the injuries sustained, as well as the loss of income whilst she was unable to work her normal job.
In this case, the graphic designer’s insurer thought that the claims were suspicious and appointed assessors to conduct an investigation and provide expert opinion reports on the validity of the customer’s claim.
In addition, the insurance company appointed a law firm to act on the designer’s behalf to obtain copies of receipts for medical treatment and statements from the customer’s work confirming the time frame she was unable to work.
The whole process took three months to finalise with the customer, and the total cost incurred for the assessors and lawyers was $30,000. Compensation for the medical treatment and loss of income was $45,000.
The ‘trusted’ accountant
November 18th, 2016
Over a period of 5 years, an employed accountant at a transport company misappropriated $855,000 by altering cheques received from debtors.
The employee had a close friendship with the owner of the company and was a trusted friend and employee.
The employee facilitated the fraud by continuing a cycle of paying debtors accounts with funds from other debtors throughout this period. This continued until his scheme was uncovered by the company’s new auditors.
The total loss to the company amounted to $855,000. In this instance, there was no chance of recovery from the fraudster as he had no assets and had effectively gambled away the stolen funds. The investigation and legal costs totalled $155,000. The business was covered under a management liability policy and was able to have the legal costs and loss.
Soiled Stock
November 10th, 2016
A prolonged power outage across an entire town meant that a popular cafe’s freezers and refrigerators were switched off for an extended period of time. When the cafe was finally able to begin operations again over a week later they were without a large proportion of their stock, including all their meat, ice-creams and drinks. The business had to work without their full menu and stock for weeks.
Fortunately, they were covered for the loss of stock and business interruption under a business insurance package and were able to claim for the loss of business during the closure period, as well as the $2,000 worth of stock that was lost.
A Steep Learning Curve
November 3rd, 2016
A bookkeeper was hired on a contractual basis for their services by a busy firm. During that time the firm installed a new accounting software that the bookkeeper had no background in.
This resulted in a number of errors and omissions to their work. It caused a significant financial impact – resulting in a $25,950 loss for the firm. They sued the bookkeeper for the financial loss.
Fortunately the bookkeeper was insured with a professional indemnity policy. The claim was paid in full by the insurer after the bookkeeper was found to be at fault.
Read more about Professional Indemnity here.
Constructing a Claim
October 26th, 2016
During the construction of a commercial property, an employee was severely injured and left paraplegic when a pile of debris accidentally fell on him. The company was subject to a full Occupational Health and Safety investigation and prosecution. The Company vigorously denied and successfully defended all allegations. Despite their attempt, the Company was fined $155,000 and incurred $100,000 in legal costs, which were covered by the Insurer.*
*Not all policies will cover you for fines, where in most cases defence costs are covered. Please read the Policy Disclosure Statement before purchasing.
The Haphazard Apprentice
October 20th, 2016
A fairly green apprentice was tasked with disposing of cleaning chemicals used on site at the end of the day. The chemicals were not disposed of properly (see more here) and the chemicals were leaked into the waterways.
The leak caused a contamination at a neighbouring property which alerted the Environmental Protection Authority.
The company was fined $40,000 under the Environmental Protection Act.
The company’s statutory liability, (available under either a Business Insurance Pack or under a Management Liability Policy) was able to cover them for the costs*.
To find out more about Management Liability see here.
*Not all policies will cover you for every type of fine, where in most cases defence costs are covered. Please read the Policy Disclosure Statement before purchasing.
Messy Migration
October 13th, 2016
A busy migration agent was lodging an application on behalf of one of his clients, desperate to get into Australia.
Swamped with work, the agent got his paperwork mixed up and mistakenly lodged an incorrect visa application on behalf of his client.
In order for the client to remain in Australia, they had to start the process anew and submit the correct visa application. This forced the client to leave the country briefly to activate this new visa.
In a more fortunate turn of events, the migration agent was covered by his Professional Indemnity Policy which covered the almost $10,000 paid, to the client to cover the costs of his flights, and to cover the costs of the new visa application excluding the retainer fee.
To find out more about Professional Indemnity Insurance see here.
A Hairy Situation
October 5th, 2016
A woman visited a beautician and requested an IPL laser treatment to get rid of her unwanted hair body hair. The beautician performed the treatment in the same manner as all of her previous customers, but the client complained of discomfort during the procedure.
The beautician offered to stop the treatment on several occasions, but the client decided to push on and continue with the process, which was carried out successfully. Afterwards, however, the customer made a complaint against the business, claiming that she was burnt during the treatment.
Fortunately, the business had a Professional Indemnity policy that covered them against the claim, smoothing out a potentially hairy situation!
To find out more about Professional Liability insurance see here.
Cyber Extortion
September 14th, 2016
An engineering firm with 20 staff including 3 admin and roughly $18 million turnover was hit suddenly with a Ransomware virus causing their server to become totally encrypted and inoperable. The hacker demanded the equivalent of $10,000 in BITCOIN.
What to do? Try and get your information yourself, or, give in to the ransom and hope that they return with a decryption code?
In this case the firm decided to pay the ransom, because after a lengthy deliberation it was discovered that there was no viable back-up of their data to restore. They also attempted to remote login to the system which also failed.
Luckily the firm was insured with cyber liability and was able to work with their insurer to pay the ransom and to restore the system.
In this case, they were one of the lucky few and once the ransom was paid the hackers provided them with a decryption code that restored the system.
The total cost was $18,650 which included the ransom plus the costs of diagnostic work to figure out any potential restoration and the other IT expenses to restore the system.
The Online Onslaught
We never believe it can happen to us, that the “What if” will become a terrifying reality. Yet it happens more often that you think. 1 in 5 Australian businesses are the victims of a cyber attack and the number of attacks continues to rise.
One such ‘horror story’ is from a law firm with 8 staff and a turnover of $2M.
The firm was going about their daily business when suddenly they found that their servers and all their client records had been locked by Ransomware software.
This ransomware was demanding a payment of $55,000 to regain access to their information once more.
Ransomware has been steadily growing since 2013.* Many times these attacks come in the form of Trojans sneakily disguised as an email attachment or download file. Some prominent versions like Cryptowall have procured up to $15 million.
Attacks of this kind can cost your business more than the ransom; many victims also incur the additional costs of business interruption and productivity loss, network and security counter measures, legal fees and cost for other IT measures.
Unluckily, in this case, the hackers never released the files after the ransom was paid and the business also had to bear the cost of restoring and rebuilding the network as well as the loss of productivity. The one shining light was that they were covered by a cyber liability policy which covered them for $155,000 of ransom and associated costs.
The Employee Embezzlement
These incidents don’t always come from outside, you can also face these threats from within your organisation. As stringent as your hiring process can be, you can never be one hundred percent certain on your employees within your organisation.
A restaurant in Adelaide learnt this the hard way when a group of 4 employees and their friends stole alcohol and stock from the Restaurant totalling over $255,000.
This stolen alcohol and stock were then on-sold to unsuspecting purchasers who were not aware that the goods were stolen, and the employees pocketed the proceeds.
The restaurant finally discovered the missing stock whilst undertaking a stocktake. They then conducted a further investigation, interviewing employees and reviewing the surveillance camera footage where they discovered the scam.
After a full investigation was conducted it was determined that $250,000 worth of stock and alcohol was stolen in total.
A loss like this can have a serious toll on a small business, even shutting them down for good. A management liability insurance policy can be the only saviour for a business in cases like these. In this case, the restaurant was covered and the crime section of their policy covered them.
Business Insurance cover options such as Management Liability and Cyber Liability are little known but have the potential to save a business from a very real threat. To find out more about Management Liability visit here.
The Deregistered Dismay
Threats are also just as real in the physical world. Any professional who gives advice or recommendations in their line of work could be sued by their client. This includes everyday professions such as a graphic design, IT professionals, accountants, health professionals and marketers.
The risk of a claim being made against you isn’t always determined by your skill or level of professionalism. There is always the risk of an unhappy client making a claim against or suing you.
In the case of a Marketing and Digital Design Agency based in Queensland, it was a simple website update that caused them to come unstuck.
The agency was engaged by a major mining company to provide marketing and digital design services. Whilst updating their own website with their most recent work on their portfolio, an Accounts Executive inadvertently stated that their former client had been deregistered and was no longer trading.
This mistaken information was picked up by the local newspaper which then ran a story in their paper, whilst the former client had not been deregistered and was still trading.
Things escalated when the mining company issued a claim for damages of $1.5M against the agency for defamation and alleged that their reputation had been marred as a result of the incorrect information being published on the website.
The agency and their former client were unable to reach a settlement as the agency was adamant that the mistake had made no material impact on the former client. The claim then escalated in a hearing in the Supreme Court of Queensland and a judgement was handed down in favour of the former client. The agency had to pay their former client the amount of $1.2M plus $140,000 in defence costs.