Chad E. Milton, senior vice president of Media/Professional Insurance (seated), meets with Media/Professional executives (left to right) Bernie Kurtzweil, ARM, assistant vice president, underwriting; Mark W. Hutchins, executive vice president, underwriting; and Gretchen G. Sayers, senior claims counsel.
It's fascinating, and sometimes a little frightening, to consider how the world of cyberspace has already changed our lives. Via the Internet, we can communicate instantly with other users in almost any part of the world. We can obtain and/or provide information on a grander scale. We can approach vast audiences over the Internet and can conduct business transactions with greater economy.
But everything comes with a price and, with cyberspace, the price thus far is uncertainty. How does one construct a simple Web site without running the risk of infringing on someone else's rights--rights of privacy, of trademark, of copyright? True, these dangers are not new. All these rights have been addressed ad infinitum in the Constitution, in laws and regulations and in court decisions. Guidelines warn us when we are in danger of stepping over the bounds of proper business behavior.
"There are unanticipated consequences for the non-information business that finds itself in the information business."
--Chad Milton
But with Internet, the rules, while not changed, are somewhat in abeyance. This new delivery system is expanding rapidly, and regulators and legislators are finding it hard to keep pace. Even though the Internet is in its infancy, it already has spawned litigation. Consider the following cases:
* An online direct marketing company sent e-mail solicitations for its clients to all users of a commercial online service provider. The commercial online service provider sued the online marketing company for trespassing. The court hearing the case found that the online marketing company was liable for trespass and damage to the service provider's good will.
* A commercial online service allowed a famous author to advertise his book in one of its forums. The online service was sued for copyright infringement by an artist who claimed that the author used certain artwork on the cover of the book without the artist's permission. The cover of the book was digitally displayed in the online service's forum.
* In 1991, Playboy magazine obtained a trademark injunction against an Italian magazine titled Playmen from distributing its magazine in the United States. When Playboy recently discovered that Playmen had opened a Web site and that users in the United States were allowed to download stories and photos from Playmen by using this Web site, it sued the Italian publisher for violating the injunction and held that the publisher was required to prohibit downloading of stories and photos by United States consumers.
* A maker of stick-on note pads sued a large software company for trademark infringement. The lawsuit alleged that an office management program released by the software company contained a command that allowed a user to affix the electronic equivalent of a stick-on note pad to text created using the program.
"Some of these claims we've handled; in others, we were not directly involved," says Chad Milton, senior vice president of the Kansas City, Missouri-based Media/Professional Insurance. "But they demonstrate the kinds of disputes that are coming out of the cyberspace arena." Media/Professional recently devised a new insurance program called "CyberLiabilityPlus," which grew out of two of the firm's previous specialties--media insurance and specialty errors and omissions (E&O).
Mark Hutchins explains that CyberLiabilityPlus grew out of Media/Professional's expertise in media coverages and specialty E&O.
"We have been writing the media liability coverages for the traditional media for the past 20 years," says Mark Hutchins, executive vice president of Media/Professional. "We've been doing the specialty E&O coverages for about 18 years. Under those programs, we have been involved with Internet-related exposures, and the area is growing. Therefore, we decided that cyberspace exposures required a special program of their own."
Milton puts the whole media/cyberspace issue into perspective. "We live in an information age, where information, or the appearance of processing information, opens doors of opportunity and profit," he says. "This phenomenon is changing the way American businesses do business, because part of being in business today involves processing, controlling, digesting and disseminating information. That is true even where the business isn't really in the information business."
Milton explains that some businesses are in the information business, such as newspapers, magazines, databases and consultants who develop information specifically for a particular client. "In each case, information is the business's stock in trade," says Milton. "The business exists in order to sell information."
Continues Milton: "Information can be a powerful marketing tool. It can be used to draw in customers, as in the case of an appliance company that gives away information about the Olympics in order to get people to think about buying a new television to watch the Olympics. Information is also good for a business's image. To possess knowledge and information connotes competence and professionalism, so professionals often give away information in newsletters, seminars, videos and books in order to create the impression that they are in command of information."
Again, Hutchins and Milton say this is nothing new, but what is new is the tremendous growth in the production of "ancillary information" by businesses otherwise not in the information business.
Bernie Kurtzweil says that in its first six months in the marketplace, CyberLiabilityPlus has been well received. Gretchen Sayers emphasizes that one strength of the policy is that it allows insureds to choose their own defense counsel.
"Newsletters and seminars abound, but the real explosion has come with high technology," says Milton. "Corporate videos and CD ROMs are commonplace today and the corporate Web site is ubiquitous. There are unanticipated consequences for the non-information business that finds itself in the information business. First, there are liabilities presented that can trap the unwary. Second, the potential liabilities arising from that new information business may be outside the scope of the business's existing insurance. For Internet businesses, the CyberLiabilityPlus program addresses those consequences."
According to Hutchins and Milton, the general areas of media-related exposure are defamation, invasion of privacy, newsgathering torts, intellectual property torts and errors and omissions.
Defamation, of course, means libel; but defamation-type torts have various names, depending upon jurisdiction. For example, there is trade libel and product disparagement, where a false statement is made about a business product. Trade libel usually comes up in information that compares one product with another. A defamation exposure can include negligent or intentional infliction of emotional distress, outrageous conduct or breach of duty not to harm.
Invasion of privacy can fall into any of four major categories: intrusion or seclusion (for example, a photographer or reporter who may intrude on the private space of a person); private facts made public (e.g., a story or photo brings attention to an embarrassing fact that a person has the right to keep private); false light in the public eye (similar to libel, but the offending statement need not be as bad as required for libel); and commercial appropriation (unauthorized use of a person's name or likeness for commercial purposes).
Newsgathering torts include trespassing in order to get a story or photo, assault on somebody in an ambush interview, slander and false imprisonment when a person feels detained in order to avoid being photographed or interviewed.
Intellectual property torts involve the taking of another person's ideas or work without permission or compensation. These include copyright infringement, infringement of trademark, misappropriation of ideas, infringement of titles and slogans, and unfair competition.
Finally there are errors and omissions exposures. "An area of increasing concern is that of liability for economic loss, property damage, or bodily injury that may be caused by the words and pictures in media," says Milton. "Claims can allege injury from following faulty instructions in a 'how-to' book or article, or from being incited to try out something the claimant has read about or seen on television or the Internet. Broadcasts or publications of technical information present substantial errors and omissions exposures. Consumers rely on the expertise of the media firm and sometimes use the information for important decisions. Decisions based on published technical information can lead to financial loss, mental anguish, bodily injury, or property damage."
Milton says that not every business needs specialty media coverage. Some businesses may, for economic reasons, choose to rely on existing CGL or E&O policies. However, determining factors would include: sheer volume (more publications mean more exposure); distribution to a wide audience (claims may be asserted in unfamiliar jurisdictions); content (whether the information is considered "media" rather than just "advertising"); and income generation (if the media activity contributes to the bottom line).
Milton maintains that all these exposures and determining factors apply today to businesses' activities in cyberspace, and that is why Media/Professional has created CyberLiabilityPlus. Basic coverages include: description of cyberspace activities specially crafted for the account; combined content and errors and omissions & negligent acts coverage; personal injury; copyright infringement; trademark infringement; and liability arising from unauthorized access. There is no punitive damage exclusion, except where required by law. Optional coverages are available as well, and the policy is written on an occurrence basis.
From a claims handling standpoint, Gretchen Sayers, senior claims counsel for Media/Professional, sees this new product as an "exciting one" that has come out of the "cyberspace environment" that exists today. "We have entered into a new era of the law," she says, "and claims are already coming out of the cyberspace realm that no one has anticipated. Anyone who has a strong presence on the Internet should think about all the legal implications, and the possible exposures to liability lawsuits. On the claims side, one of the significant features of our coverage is that we allow our insureds to choose their own defense counsel, with our approval."
Bernie Kurtzweil, assistant vice president for Media/Professional, says that, thus far, the CyberLiabilityPlus program, which was just launched in April, has been very well received. "Everyone is concerned today with issues such as privacy and intellectual property. Insurers, therefore, are trying to come up with new products to address these issues. There are different approaches, of course. Some emphasize content, some E&O. Because we are a leader in the media and services E&O insurance markets, our product is designed to unite the coverages for these exposures in one policy from the start."
How is Media/Professional pricing the product? "Good question," says Hutchins. "Right now we're pricing it based on our experience to date from our media business combined with our knowledge of services for E&O exposures. As we build a history in the cyberspace area, the price will be adjusted accordingly." And one more thing that Hutchins emphasizes: As with their other products, CyberLiabilityPlus is marketed via the independent agent.
Uncertainty exists in all new frontiers. But businesses should not wait until a claim is asserted to determine if they have insurance coverage. "With over 350 million pages publicly accessible on the Worldwide Web," contends Mark Rebein, Media/Professional's president, "there's one thing you can be certain of: Claims will occur and sometimes in large numbers." *
©COPYRIGHT: The Rough Notes Magazine, 1999