Expert Commentary

New Liability Forms and Media, Tech, and E-Business Risks

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.

Cyber and Privacy Risk and Insurance
May 2004

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.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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