Business vulnerability to employee or customer sabotage

Peter Switzer November 17, 2008
Article from: The Australian

THE Coogee Bay Hotel is facing one of the greatest threats to its profitability and its all-important brand with the discovery that a customer was served human faeces in a chocolate ice cream desert.

This raises an issue for all small businesses: how vulnerable are they to employee or even customer sabotage, and what protection they should have.

The lesson from this case is that business owners and managers have a massive business risk and while insurance offers some protection, highly enlightened leadership and top-notch employee relations are critically important.

In case you missed this controversial event, a family reported that they had been served human poo in a bowl of chocolate ice cream. The hotel has settled the case with a $50,000 compensation payment. The matter is still subject to police investigation and the culprits are still to be identified.

It's reported that staff have been DNA-tested.

In the meantime the hotel has lost incalculable goodwill, jokesters christening it with economically damaging nicknames such as "Poogee Bay Hotel".

As risk management is critical for all successful business strategies, the question is: does conventional business insurance cover proprietors against the direct economic losses that can come from incidents of this kind?

All food businesses and most operations that serve coffee could potentially poison a customer. Cafes, restaurants and shops could easily and accidentally threaten customers' health through the likes of salmonella.

"Public and products liability insurance would generally compensate customers for personal injury or damage to their property caused by the non-deliberate failure of an employee to exercise the degree of care required," says Gerard McDermott, the executive general manager, customer and sales service, at GIO.

"For example, an employee may accidentally spill a serving tray of hot food and beverage on a customer during the course of serving."

But the big issue for the Coogee Bay Hotel specifically and other businesses generally is that public liability policies do not, as a rule, cover the deliberate and criminal acts of employees.

John Hart, the chief executive of Restaurant and Catering Australia stresses the difficulties for business owners when a disgruntled staff member goes feral.

"I would think the insurance coverage depends on whether the act was malicious," he says. "In such a case, I doubt anything would cover such an action."

The food industry is responsible for self-regulation of the safety of the food and beverages they supply whether as a cafe, restaurant or producer.

"The public and products liability product provides cover to compensate customers for unintended omissions that result in contamination of food, leading to claims," McDermot says.
"For food and beverage manufacturers, specialist insurance known as 'malicious product tamper' can be purchased to cover the deliberate contamination of food.

"However, it is very expensive and only available to those companies with a proven good history, excellent quality assurance programs and recall and crisis management procedures and policies."

These facts underline how exposed small businesses such as cafes and sandwich shops are. It illustrates the risk management, staff training and deep understanding of staff that a boss in this industry has to have.

John Hart believes employers have to manage these situations professionally.

"I am not sure we know what caused this event," he says.

"However, if it was staff out to get back at a customer, we would hope (that) effective management would not allow a situation like this to arise in the first place."

A big risk is that copycat actions could follow this well-publicised event.

"There are some instances where disgruntled staff do things to harm their employers but we do not really hear of these sort on instances," Hart says. "In small businesses like restaurants, if the owners have close working relationships with their staff, this sort of thing would be virtually unheard of."

Public and products liability insurance is a necessity for businesses. It not only compensates third parties such as customers for personal injury and property damage where the business is legally liable, but can also cover the cost of defending claims made against them, even where it is established that there is no fault.

The cost is not prohibitive, with minimum premiums starting at around $600 for $10 million worth of coverage. For a business with a turnover of $250,000 this is a rate of less than 0.25 per cent.

McDermot says liability claims do not happen as frequently as vehicle claims but when they do, the cost can be much higher. From GIO's experience, liability claims of $30,000 to $90,000 are not uncommon.

Any business afraid of being left in the "you know what" has to do risk calculations on what it could step into in the future and take out the smart level of protection.

Peter Switzer is the founder of Switzer Business Coaching
www.switzer.com.au