New Stand-Alone E-Commerce Liability Insurance for Third-Party Liability
Claims (Part 1)
December 2000
Whether you’re a small or large firm, if you’re
in the market for a stand-alone e-commerce liability policy, this article explains
the issues to consider. Learn tips on how to negotiate coverage and compare
various insurers’ off-the-shelf forms. Published in conjunction with a policy
comparison chart (see below), this article examines the state of the market
and identifies various insurers, their respective forms, and capacity.
by Michael
A. Rossi
Insurance Law
Group, Inc.
This is the fourth installment in a series of articles for this column which
discusses insurance issues for e-commerce risks. The first three installments,
listed below with appropriate links, provided a broad, general overview of e-commerce
insurance issues.
This installment focuses on stand-alone e-commerce liability insurance policies.
More specifically, if you're thinking of buying one of the new stand-alone e-commerce
policies, what issues should be considered when negotiating coverage, or even
just comparing one off-the-shelf form to another?
As noted in the previous articles, different sectors of the policyholder
community appear to respond to e-commerce insurance issues in different ways.
Most large companies are not buying any of the new stand-alone e-commerce policies.
This is because their current insurance programs contain most, if not all, of
the different types of policies needed to cover much of the risks posed by e-commerce
activities. They need only "tweak" such policies here and there to more fully
respond to the panoply of e-commerce risks.
In contrast, most small companies involved in e-commerce are buying the new
stand-alone e-commerce policies, at least with respect to the liability coverages
provided by such policies. This phenomenon is occurring for a number of reasons.
First, by and large, such companies are just now building their insurance programs
and deem it viable to include such a policy in their program on a primary basis
and build around it. This is opposed to buying such a policy on a difference-in-conditions/difference-in-limits
(DIC/DIL) basis, which is what is being offered, for the most part, to large
companies with sophisticated insurance programs that already respond to a lot
of e-commerce risks.
Second, many smaller companies do not have the size, premium volume, or risk
management expertise necessary to make "tweaking" traditional policies viable.
Insurers just are not willing to make any changes to off-the-shelf policies
in regard to e-commerce risks for such companies-a concession often rendered
to large customers.
Accordingly, this installment is really for those companies (large and small)
that are buying one of these new stand-alone e-commerce policies. The article
does not list all of the issues that should be considered, but does highlight
some very important considerations.
State of the Market
Several insurance insurers are offering stand-alone e-commerce insurance
policies, as can be seen in the Stand
Alone E-Commerce Market Survey. This chart lists the different stand-alone
e-commerce insurance policies currently known to the author and will be updated
on a regular basis. Refer to the chart in the future (rather than this article)
for information on the current state of the market.
Below are the policies that the author has seen being quoted with the greatest
frequency when it comes to insuring e-commerce liability risks. The list set
forth is not intended to be exhaustive, but rather illustrative.
When buying a stand-alone e-commerce liability policy, it is important to
understand the state of the market. What different policy forms are available?
What do they do? What capacity (i.e., limits of liability available) does the
insurer selling the cover have? These are important issues to consider when
reviewing quotes that the broker brings back from the market.
Insurers, Forms, and Capacity
There are at least two different ways to buy stand-alone e-commerce insurance
for liability risks. You can purchase one of the new combined forms that provide
both first-party coverage (commercial property, crime, employee dishonesty,
kidnap and ransom, business interruption, extra expense, etc.) and third-party
liability coverage. However, buy only the third-party liability coverages of
that combined form. The other way is to buy one of the policies that provides
only third-party liability coverage.
Insureds buying stand-alone e-commerce policies seem to be focusing on the
latter buying strategy. Accordingly, these forms are highlighted in this section.
Keep in mind that other policy forms that offer both first-party and third-party
coverages are available (e.g., policies offered by Zurich, ACE, St. Paul, and
AIG, as well as policies offered through Marsh-it's NetSecure policy). Again,
these policies are identified in the Stand Alone E-Commerce Market Survey.
AIG is selling stand-alone e-commerce liability
insurance at least a couple of different ways. For example, AIG offers several
different versions of a policy called the "netAdvantage Internet Professional
Liability Policy," providing different levels of coverage. Insureds should consider
asking for the policy that contains the greatest levels of coverage (most likely
the "pro +" form), and start working from there (i.e., asking for coverage enhancements
to that form).
Interestingly, AIG can also offer e-commerce coverage another way, by using
its Pro Tech form. The Pro Tech form insurance program uses "modules." You buy
the basic "platform" policy (a lot of terms and conditions, but no insuring
agreements), and then attach different modules as endorsements (each module
is a different insuring agreement, with any additional definitions, terms, conditions,
and exclusions needed to address a particular activity). The modules include,
but are not limited to, the following:
- Technology Professional Liability
- Media Errors and Omissions
- Telecommunications Professional Liability
- netAdvantage
- Miscellaneous Professional Liability
It is AIG's intention that the netAdvantage module provide the insured using
the Pro Tech form the same liability coverage afforded by the netAdvantage Professional
Liability Policy (beware, though, because wordings do indeed differ between
the two programs).
It appears that the way AIG intends these different offerings to work is
as follows. If the insured just wants e-commerce activities covered, it should
buy the netAdvantage policy. If the insured wants to insure e-commerce activities
and other activities, it should by the Pro Tech policy and add all of the modules
it wants to add. The netAdvantage module is a two-page endorsement to the Pro
Tech form, and addresses e-commerce activities. The other modules pick up non-e-commerce
related activities. The Miscellaneous Professional Liability module can be used
to address any professional services that the insured is doing that are not
otherwise addressed by the other modules—the insured just lists the different
services in the endorsement module.
AIG's capacity on these different forms appears to be substantial, and AIG
stands out in the market regarding capacity when compared to the other insurers'
offering of stand-alone e-commerce liability insurance. (The other insurers
referenced above that sell combined first-party and third-party forms also offer
substantial capacity.) AIG has the ability to offer up to at least $25 million
in limits on these lines of coverage. The capacity on the other forms seen quoted
(as discussed below) is much more limited, ranging anywhere from $2 million
to $5 million, depending on the prospective insurer at issue.
Chubb also offers different products. For
small companies, it sells the "Safety'Net Internet Liability Policy." This policy
addresses only media errors and omissions risks related to e-commerce activities.
It does not address professional services liability. Chubb has a variety of
other policies for professional services liability and appears to be telling
the small-company market to buy two different policies from Chubb, rather than
a combined form from Chubb.
Royal (through one of its surplus lines
subsidiaries) is one of the insurers that apparently is offering only one form
to the market, but the form provides several coverages. The "Computer, Telecommunications
and Internet Services Liability Coverage" policy, as its name suggests, includes,
but is not limited to, liability insurance coverage for e-commerce activities.
Gulf (through Media/Professional Liability)
is another insurer apparently selling only one form to the market, using a form
that provides several coverages. Like the Royal offering, Gulf's "CyberLiability
Plus Insurance Policy" includes, but is not limited to, liability insurance
coverage for e-commerce activities.
Great American (through Tamarack) is yet
another insurer apparently with a single policy form offering. Its "Dot.Com
Errors and Omissions Liability Insurance Policy," like the Royal and Media/Pro
offerings, includes, but is not limited to, insurance coverage for e-commerce
activities.
Several different Lloyd's facilities are
also selling stand-alone e-commerce insurance. One facility seen with substantial
frequency offers what it is calling the "Computer Information and Data Security
Insurance (CIDS)" policy. It provides coverage for professional services liability
and media errors and omissions liability for all services provided by the insured,
whether e-commerce related or not.
As discussed above, the policies offered by Royal, Media/Pro, Tamarack, and
Lloyd's all look much more like what AIG offers with its Pro Tech program. That
is, the policy forms provide several different coverages which, depending on
the form at issue, includes professional liability, media errors and omissions,
telecommunications liability, and miscellaneous professional liability for both
e-commerce and non-e-commerce activities. As noted, however, the capacity these
insurers are able to offer appears to be much lower than what AIG can and is
offering on its netAdvantage and Pro Tech programs (from $2 million to $5 million
depending on a number of variables).
It may be that these insurers can offer higher limits on these forms, but
they have yet to be seen by the author. And perhaps these insurers can issue
a "primary" policy, and the insured can build capacity by buying excess "follow
form" coverage from other insurers. The insured should consult its insurance
broker for more information in this regard.
Click on Part 2 to see the conclusion of this
article.
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