Defending the Digital Frontier
Digital technology continues to transform the global publishing arena, from changes in copyright law to ways in which media and technology are insured.
Kevin P. Kalinich, Chicago-based global practice leader for cyber/network risk at Aon Risk Solutions, emphasized just how dramatic the transformation in global publishing has been in recent years.
“If you take a look at the top four or five publishers like Pearson, Reuters, Thomson, Reed Elsevier and Wolters Kluwer … in just the last five years they’ve converted from being 75 percent hard copy to being 80 percent electronic.
“It’s amazing, and here’s why it’s so important,” Kalinich added. “In the old world when hard copy ruled, the end user — the consumer — would not be liable because the publisher was liable for publishing it.”
Now, however, there are few limits to how an end user can use digitally published content. And it’s not always clear where the line is between fair use and infringement.
Kalinich and others said that publishers walk the tightrope of trying to protect the original content owner while protecting the end user from unintentional intellectual property infringement.
“End users need the appropriate legal rights to use copyrighted materials or they could potentially commit copyright or trademark infringement,” said Kalinich. “Typically, the IP rights are granted through a licensing agreement or ‘fair use exception’ to copyright violations. Fair use is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work.”
The Role of Intent
In the past year, there have been two landmark copyright decisions in the online publishing realm that have media/technology experts buzzing.
One is Authors Guild Inc., et al. vs. Google Inc., a decision rendered in mid-November. The other is the Associated Press vs. Meltwater U.S. Holdings Inc., a decision reached last March.
In the Google case, book authors and several major book author associations challenged Google’s reproductions of books and “snippets” of millions of books on its website. The book authors claimed this did not constitute “fair use” and violated their copyright protection.
The decision by U.S. Circuit Court Judge Denny Chin in Manhattan — if it survives an announced appeal of the ruling — lets Google continue expanding the online library. Chin ruled that Google’s product helps readers find books they might not otherwise locate.
The institutions that have provided works for scanning of snippets include Harvard University, Oxford University, Stanford University and the New York Public Library.
A key element in Chin’s “fair use” decision was that Google does not receive any monetary gain from posting whole volumes or snippets of some 20 million books in its electronic library.
In the Meltwater case, New York District Court Judge Denise Cote ruled that online aggregator Meltwater infringed upon AP’s copyright protection by using original content that AP had “labored to create.”
Not long after Cote’s ruling, AP and Meltwater entered into an agreement for AP to produce and Meltwater to electronically distribute content in a joint venture.
“It’s encouraging to see collaborations like the one between the Associated Press and Meltwater aggregating service as they try to work together, because clearly this is what the future looks like,” said Joanne Richardson, New York-based practice leader, U.S. media and entertainment, E&O at Hiscox USA.
“Companies that find ways to bring content and distribution together are really going to be the winners at the end of the day,” Richardson added. “I think it’s the way things are going to have to go. They need each other. It’s a win/win for everybody.”
Eric Seyfried, New York-based senior vice president at Marsh & McLennan Cos.’ FINPRO group, makes a distinction between online aggregators that are in business for monetary gain, like Meltwater, and online aggregators like Google Books, which exist to serve research and other scholarly purposes.
“In Judge Chin’s decision, he talks about Google providing significant public benefit,” said Seyfried. “Are they making available information that has been buried in the bowels of libraries, for example? In the Google case you have to look at the purpose and character of the use. Are they bringing potentially long-lost volumes to light for scholarship and research?”
Seyfried believed that Chin was “growing the pie” of books available.
Aon Risk Solutions’ Kalinich noted that Chin said he believed the authors involved would get more sales because Google was cataloguing their work, and that Google wasn’t making any money off the arrangement.
In the Meltwater case, Marsh’s Seyfried said, Meltwater used its proprietary technology to “scrape” the Internet for news stories and then processed the information into some sort of news digest for their subscribers.
“Is Google trying to further some level of scholarship and research, whereas Meltwater is looking to monetize content for its own benefit through selling subscriptions?” asked Seyfried. “It’s not some sort of academic or intellectual exercise, while Google is about building the brand rather than a subscription base.”
Louis Scimecca, Kansas City, Mo.-based senior vice president for AXIS PRO, which provides media and entertainment coverage, among other solutions, noted: “With the Internet and electronic communications flourishing and expanding, in a lot of cases the law hasn’t caught up with new technology. The technology comes and then the law follows.”
Scimecca said that the issue isn’t restricted to content aggregators. Any individual can find themselves in a legal tangle for using another party’s copyrighted material or trademarked digital matter without permission. “Generally right now, if a person or an entity is taking somebody’s else’s copyright material without permission or consent, that is a problem,” he said.
As in the Google case, Scimecca said, “fair use” might be a defense if material is used for educational, scholarly or teaching purposes.
Protecting the Business
In the realm of insuring risks at media/technology companies, Chad Milton, a partner at Kansas City, Mo.-based Media Risk Consultants LLC, said that as technology at media companies with innovative strategies change, these businesses threaten somebody else’s old business model.
“And the result more often than not leads to a copyright infringement claim,” said Milton. “The history of this kind of litigation is that it’s really about business practices rather than about individual bits of content. We’re not really talking about infringements in a writer’s product or work, we’re really talking about infringements in the way media companies do business.”
It wasn’t often that anybody cared about copyright infringement when content was free, Milton added. “But now that so many online publishers are trying to find ways to monetize their content, it now conflicts with the business models of the online aggregators who want to use other people’s content without paying for it.”
This environment creates interesting risks for insurers because formerly the insurers were asked to insure individual bits of media content: individual songs, individual films, individual stories and individual broadcasts, Milton said.
“They’re now being put in the position of insuring business models, and it’s harder for insurers to be able to insure the innovators,” Milton said. “And I think they need to find a way to convince underwriters that this is a manageable risk. I know there’s some resistance on the carriers’ part about this.”
But Hiscox USA is not one of those underwriters. As long as a decade ago Hiscox was creating product to address the merger of media and technology.
“We were able to put a form together that addressed both, so there was no gap in coverage because media companies now had technology exposure and technology companies had media exposures,” said Hiscox’s Richardson. “Today, there’s a lot more combined forms of media, technology and data privacy.”
Richardson said Hiscox tends to look at things on an individual risk basis, which means they want to understand how these new technologies work and function and be able to sort out exactly what some of the hiccups for them might be along the way.
“We will need a lot more case law to develop in some of these areas before we’re able to ultimately and completely understand all the exposures,” she added.
Observed Marsh’s Seyfried: “The key to insuring a media company is to try to come up with a comprehensive professional liability program. The foundation of that program is based on media liability insurance and making sure that a robust program covers a variety of media perils.”
The next step is finding a market that has the appetite to take on the risk. The other piece of the coverage is some sort of technology offering.
“I can say I do not have one significant media client in the whole risk management space that does not buy some combination of network privacy coverage and/or technology products and services coverage,” Seyfried said.
Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
Preparing for and Navigating the Claims Process
All of a sudden – it happens. The huge explosion in the plant. The executive scandal that leads the evening news. The discovery that one of your company’s leading products has led to multiple consumer deaths due to a previously undiscovered fault in its design. Your business and its reputation, along with your own, are on the line. You had hoped this day would never come, but it’s time to file a major claim.
Is your company ready? Do you know – for certain – how you would proceed, both internally with your own employees, and externally, with your insurance provider? What data will you need to provide, and how quickly can you pull it together? Do you know – and understand – the exacting wording of your policy? Are you sure you are covered for this type of incident? And even if you are a multinational with a global policy, how old is it, and is your coverage in concert with any recent changes in the laws of the country and local jurisdiction in which the incident occurred?
As should be clear from these few questions, if you organization is hit with a major event and you need to make a claim, just knowing that you are current with your premium payments is not enough. Preparation before the event ever occurs, strong relationships with your insurance team, and a thorough understanding of what needs to happen throughout the claims process are all essential to reaching a satisfactory claim settlement quickly, so that a long business disruption and further damage are avoided.
Get Ready before Disaster Strikes
The Boy Scout motto, “Be prepared,” applies equally well to organizations that may suddenly be faced with the need to navigate the complexities of the claim process – especially for large claims following a major crisis. Crises are by nature emotional events. Taking the following steps ahead of time, before disaster strikes, will help avoid the sense of paralysis and tunnel vision that often follows in their wake.
Open up a dialogue with your insurer – today.
For risk managers and others who will be called upon to interface with your insurer in the event of a crisis, establishing open and honest lines of communication now will save trouble and time in the claims process. Regular communication with your insurance team and keeping them up to date on recent developments in your organization, business and manufacturing processes, etc., will provide them with a better understanding of your risk profile and make it easier to explain what has happened, and why, in the event you ever have to file. It will also help in the process of updating and refining the wording in existing policies to reflect important changes that may impact a future claim.
Conduct pre-loss workshops to stress-test your readiness to handle a major loss.
Firefighters conduct frequent drills to ensure their teams know what to do when confronted with different types of emergencies. Commercial airline pilots do the same. Your organization should be no different. Thinking through potential loss scenarios and conducting workshops around them will help you identify where the gaps are – in personnel, reporting structures, contact lists, data maintenance, etc., before a real crisis occurs. If at all possible, you should include your insurance team and broker (if you have one) in these workshops. This will not only help cement important relationships, but it will also serve to further educate them about your organization and on what you will need from them in a crisis; and vice versa. The value to your organization can be significant, because your risk management team will not be starting from zero when you have to make a claim. Knowing what to do first, whom to call at your insurer, what data they will need to begin the claims process, etc. – all of this will save time and help get you on the road to a settlement much more quickly.
Know what your policy covers, before you need it.
This advice may sound obvious, but experience has shown that all too often, companies are not aware, in detail, of what their policies cover and don’t cover. As Noona Barlow, AIG head of financial lines claims Europe has noted, particularly in the case of small to mid-size organizations, “it is amazing how often directors and risk managers don’t actually know what their policy covers them for.” This can have dire consequences. In the case of D & O insurance, for example, even a “global” policy many not cover all situations, because in some countries, companies are not allowed to indemnify their directors. Obviously, these kinds of facts are important to know before rather than after an incident occurs. So it is important to have an insurer with both a broad and deep understanding of local laws and regulations wherever you have exposure, in addition to an understanding of the technical details of working through the claims process.
Make sure your data management policies are in order.
Successful risk management depends on having consistent, high-quality data on all of your risk-sensitive operations (manufacturing, procurement, shipping, etc.), so that you can quantify where the greatest risks sit in the organization and take steps to reduce them. Good data, complemented by strong analytics, will also help you to identify potential problems before they occur. It will also help you to maximize the effectiveness of your insurance purchasing decisions. Frequent, detailed conversations with your insurer will help you to identify any areas where additional data might be needed in the event of a crisis.
No one ever wants to find themselves in the midst of a crisis. But if and when such an event does strike, if you have taken the steps above you will be much better positioned to work through the claims process – and reach an effective resolution – as quickly and as smoothly as possible.
For more information, please visit the AIG Knowledge and Insights Center.