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.
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 websites 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 email 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 websites). 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 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.