New Liability Forms and Media, Tech, and E-Business Risks
May 2004
New commercial general liability, foreign
general liability, and umbrella liability insurance forms have been introduced
that deal specifically with e-business, media, and technology risks. As with
pollution and employment practices liability coverage before it, the trend has
been a narrowing of the coverage insureds believe is provided for these exposures
by standard general liability policies, with an offering of stand-alone coverage
in its place.
Check out the seminar! Mr. Rossi will be chairing
IRMI’s Tech-eRisk 2004 seminar this summer.
by Michael
A. Rossi
Insurance Law
Group
Last year many insurers began using new versions of the commercial general
liability (CGL) and foreign general liability (FGL) insurance policy forms.
These new forms have express provisions relating to media, technology, and e-business
risk that had never really been seen before in CGL and FGL policies. In 2004
a major U.S.-based insurer is using a new version of the umbrella liability
form, with the same type of changes as seen the year before in CGL and FGL forms.
What are these changes, and how do they impact the coverage available to
corporate insureds for their media, tech, and e-business risks? The purpose
of this article is to answer that question.
We will state for the record now that this article is not intended to choose
sides in the debate over whether these changes narrowed coverage that previously
was provided, or merely clarified insurers' intent of what they were always
intending to provide. The fact of the matter is that these new provisions appear
to be here to stay, and they are not negotiable, as far as we know. Accordingly,
it is important for corporate insureds to understand the potential and actual
impact of the changes that were made to CGL, FGL, and umbrella forms in the
past couple of years, and how to insure those risks if they want to do so.
Damage to or Corruption of Computer Data
In these new general liability forms, the definition of "property damage"
is amended to expressly provide that, for purposes of the definition, computer
data is not considered to be "tangible property." By making that change, these
new policies likely are not going to be able to provide coverage for claims
that the insured damaged or corrupted computer data.
For example, if the insured connects its computer systems via the Internet
to other businesses to conduct business-to-business (B2B) activities (e.g.,
outsourcing payroll, information technology functions, etc.) and somehow spreads
a virus to another business that wipes out the other business's data, these
new general liability policies likely will not be able to respond.
Personal and Advertising Injury Arising Out of Electronic Chat Rooms or
Bulletin Boards
These new general liability insurance policies exclude personal and advertising
injury arising out of electronic chatrooms and bulletin boards that the insured
hosts, owns, or over which it exercises control. So, for example, if a corporate
insured hosts or owns or controls a chatroom or bulletin board to permit people
to discuss issues relating to the company, and one or more users post defamatory
material on the chatroom or bulletin board, there likely would be no coverage
for a claim arising from such events. The same concerns exist with respect to
somebody gaining information about the people who are using the chatroom or
bulletin board, especially if users have to register and provide information
about themselves (a privacy claim could occur).
Companies in the Media or Internet-Type Business
These new general liability policies contain an expanded version of an exclusion
that was in older general liability policies that bars coverage for several
personal and advertising injury offenses for companies in the business of broadcasting,
telecasting, or publishing. The exclusion now refers to businesses that design
or determine content in Web sites for others, or an Internet search, access,
content, or service provider.
Unauthorized Use of Certain Information
These new general liability policies contain an exclusion that bars coverage
for personal and advertising injury arising out of the unauthorized use of information
in an e-mail address, domain name, or metatag, or any similar tactics intended
to mislead another's potential customers. This exclusion is straightforward,
so I will not explain it further, other than to say that I've actually seen
lawsuits involving such allegations.
Privacy Coverage
Whether intentional or not, another narrowing feature of at least the newer
FGL and umbrella forms is that the privacy coverage is limited to the "publication"
of material that violates a person's right of privacy. Recent forms continued
to use the broader language of any invasion of right of privacy (there was no
"publication" requirement, like there has been in CGL policies for years). This
is important for e-business risks, because a company can face a claim for invasion
of privacy without publication of information (e.g., it can face a claim merely
because it gathered information about people visiting the company's Web sites).
Also, it is not clear whether all forms of identity theft involve the "publication"
of material. Accordingly, these new forms provide a more-limited version of
privacy coverage arising out of e-business activities than older forms.
Intellectual Property Infringement
These new general liability policies contain an exclusion that used to be
reserved for general liability policies sold to tech and media companies. The
exclusion bars personal injury and advertising injury arising out of the infringement
of any intellectual property rights, other than certain infringements in a particular
"advertisement" of the insured (the term "advertisement" is defined narrowly
in these new policies).
Concluding Remarks
Any one of the foregoing issues can have an impact on coverage previously
enjoyed by corporate insureds with respect to their media, tech, and e-business
risks, but taken as a whole these changes are a tough pill to swallow. That
is, however, the state of the market today, and follows trends seen over the
past several decades with respect to general liability insurance—the insurance
industry narrows the coverage that insureds believe is provided by standard
general liability policies, and offers the coverage on a stand-alone basis.
That happened in the 1980s with pollution coverage, and in the 1990s with employment
practices liability coverage.
The same is happening with e-business risks in the 2000s, because all of
the issues discussed above that are being carved out of general liability policies
can be covered with properly worded stand-alone liability policies of one sort
or another that are readily available in the market. Such policies include newer
forms of tech E&O, media liability, and Internet liability insurance, as well
as forms that combine one or more of these coverages.
Accordingly, in the next issue of this column, we will examine in further
detail the various stand-alone liability insurance policies that can address
the gaps created by these newer general liability policies. We will also update
our survey of stand-alone liability insurance policies that cover e-business
risks to try to provide a good look at the state of the market for this type
of insurance, a market which, given these recent changes in general liability
forms, seems sure to grow over the next couple of years.
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