Trading in Google’s shares were suspended yesterday for several hours following an alleged blunder by a printing firm caused shock accounts figures to be released early.
The plunge in share price was the single largest drop in stock market history as over $24 BILLION was wiped off the company’s value in just 8 minutes. The results, which leaked out at 12.31 ET (17.31 BST), came out while the stock market was still open, rather than their scheduled time of 17.30 ET. The figures showed that the company had earned $9.03 per share in the third quarter – much lower than analysts’ consensus estimates of $10.63. Google placed the blame at its printers for the leak, saying that RR Donnelley had filed a draft earnings statement to the SEC “without authorisation”. The company ceased the trading of its shares whilst working to “finalise the document”.
The situation could lead to heavy financial losses for a multitude of financial institutions, investors and even Google itself. It’s a position that causes us to consider whether those potential losses could be covered by insurance, and if so, what type of insurance would need to be in place.
Professional Indemnity Insurance
Where a claim arises from a customer or client that alleges a financial loss following errors/omissions/breach of confidentiality or other civil liability issue, Professional indemnity insurance can meet those claims for damages and costs/expenses. There are in fact several areas where the Google share issue highlights the need for PI insurance:
- Cover for any defence costs and expenses – the printing firm, ,RR Donnelley, will certainly need Legal representation. Legal costs can be potentially huge causing the printers serious financial issues should they not have cover in place.
- Breach of confidentiality – often covered by professional indemnity policies, and alleged to have occurred here – acting without authority it could be asserted that the printers breached their confidentiality arrangements with Google by releasing the results early.
- Claims for damages – any party alleging that they have suffered a loss could bring a claim against the printers for damages. There are limits however in that any claimant (certainly if the claim occurred in the UK) would have to establish that the printers owed them a duty of care in the absence of any other legally binding obligation. Assuming that the duty could be established, a claim could be made. Considering the substantial share price losses, some institutions could submit claims for very large losses.
- Cover for claimants costs and expenses – in addition to the meeting any damages claims, professional indemnity policies often cover the costs and expenses incurred by the claimant, a significant factor to prevent the insured company from facing crippling costs bills.
- Ensure the limit of indemnity is set correctly – Apart from the defence costs (which are normally payable in addition to the limit of indemnity) all further costs, expenses, damages etc are payable from the insured’s limit of indemnity that is chosen when the policy is purchased. This case serves to illustrate that simple errors can lead to very large potential claims and as such shows the need to select the limit of indemnity carefully. The limit of indemnity is the pot of money that exists to meet claims made against the insured business. If it has been set too low, the business is left to meet any further claims costs/damages themselves.
It is hoped that RR Donnelley have arranged suitable professional indemnity insurance to assist them in this very difficult situation. Accepting that situations of this size and scale are rare but similar events on a smaller scale could equally lead to costly claims that can be met by suitable insurance.