I just went through the Clear Path user manual and a following error, Tracking Error Limit as they call it, does shut the drive down when activated. There is no capability to disregard the encoder input or, oddly enough, the ability to change the tracking error window (whatever it is). So, if the system really is losing steps, it SHOULD shut down hard. Given that, I think it safe to say that the HLFB is not seeing a following error; the motor is moving exactly as it is commanded as far as the HLFB is concerned.
Ed