By STEVE YAHN, who has written for and edited national publications for more than 30 years
Even if you are a tool and die shop, you're living with your head in the sand if you think that only a standard commercial general liability policy will protect you in the age of social media.
"Social media makes nonmedia companies media companies," said Chad Milton, executive vice president at Kansas City-based ThinkRisk. ThinkRisk is a managing general agency specializing in errors and omissions coverage in the converging areas of media, advertising, technology, privacy and network security.
"Now any kind of company can create text in lots of different formats, all of which becomes part of what a nonmedia company can do in support of its business," Milton said.
What's bearing down on companies in this rapidly expanding information age is the reality that the very nature of media insurance coverage is changing. Essentially, companies that traditionally were not media companies now find themselves to be creators of media content. And that new tool may seem attractive from a marketing standpoint, but it requires an increased sensitivity to the traditional media risks of libel or defamation, and the more recent concern of targeted Internet marketing campaigns that some think are violations of privacy. This expanding media risk universe is quickly translating into insurance policy exclusions.
Robert D. Chesler, chairman of the insurance practice at Roseland, N.J.-based law firm of Lowenstein Sandler, said, "There has been some degree of coverage in general liability policies for the leading torts that might arise in such areas as privacy, intellectual property and defamation. But those coverages are not designed for modern torts as they are now emerging and they are being quickly eliminated from the general liability policy."
Adding momentum to the expansion of this risk is Facebook, the popular interactive website, which has drawn interest for commercial uses. Facebook is the first place litigators might look to see whether a company is misrepresenting itself or disparaging competitors.
"Another way social networking is changing things for companies is that more than 70 percent of companies have a Facebook fan page. Very often the whole purpose of having a Facebook fan page or being on another social network site is to promote your business,'' said Michelle Sherman, a Los Angeles-based litigator at Sheppard Mullin Richter & Hampton law firm. If I were litigating a case for a client, I would want to see what they were saying about their company on social networking sites."
One of the scariest things about electronic communication is the speed at which it moves and how many eyes can potentially read a message in a matter of minutes. Each incremental increase in speed of distribution or the size of an audience expands the size of the potential liability.
"Technology only increases the volume of risk opportunities you encounter in the social media space," said Daren Orzechowski, a New York-based partner at the White & Case law firm. "So things happen more often, they happen faster and as a result there are a lot of things that can be triggering events under insurance policies and general liability concerns."
RIGHTS OF PRIVACY
Of all the major insurance and legal trapdoors opened by the rise of social media, the most controversial--and ill-defined--is the realm of privacy issues, highlighted by the growing debate in Congress over "Do Not Track" legislation.
"The difficulty presented by this new form of communication, social media, is that there isn't any settled understanding of what privacy should mean in that context, and because it's really a new fashion of communicating, the old rules governing privacy don't seem to fit so easily," said Jay Ward Brown, Washington, D.C.-based partner at Levine Sullivan Koch & Schulz.
"In a commercial context, we've had relatively little guidance from the courts about what the rights of privacy are in social media," Brown said. "With some of the forms of online advertising that companies are engaging in--behavioral advertising, tracking a user's preferences as best a company can and then delivering targeted advertising, for example--we're starting to see some interest in the legislature and involvement by the courts in defining the contours of this area, but privacy remains sort of a big open question."
"Right now I'm told the insurance industry just doesn't believe it has a lot of exposure under the invasion of privacy coverage of a general liability policy. But as it comes home to them in the next few years, they will just end up removing that coverage from the policy," Lowenstein Sandler's Chesler said.
White & Case's Orzechowski noted that what's really interesting in social media privacy issues and specifically the "Do Not Track" debate is that there are political and social issues, and depending on which way the legislation goes it will force a whole new wave of compliance. That new direction in compliance will then hatch its own brood of risk exposures.
"For example," he said, "there has been discussion about whether any new legislation should provide for a safe harbor provision, meaning that if a company complies with a certain set of minimum best practices for collecting, handling and transmitting personal data, it will in return avoid certain liability because it took the required measures.
"From a policy standpoint," Orzechowski said, "one can see such a provision driving meaningful compliance and corporate policy changes. Without such a provision and its protections, and the adoption of black-and-white data privacy rules, companies will be subject to potential class-action claims for violations that might not be objectively material violations."
Sheppard Mullin Richter & Hampton's Sherman said there are many nonmedia companies started by entrepreneurs who may not be as familiar with regulatory guidelines or statutes as they need to be.
"A perfect example is the Federal Trade Commission's advertising endorsement guidelines," she said. "The FTC amended its guidelines to include social media. In particular, the FTC addressed what companies should not be doing, including the posting of fake reviews by employees or public relations companies without disclosing the relationship between the review and the company.
"In some instances," she said, "the false endorsements happened in the context of a promotional campaign organized by the company, such as with a new online game or phone app, and the company should have known better or, at a minimum, consulted with legal counsel in advance."
In the privacy space, White & Case's Orzechowski said class-action attorneys are already crafting and filing claims in the social media area.
Orzechowski and others said that if you do use social media you always have to be worried about content postings and submissions liability. "If you provide for that functionality in social media where a person can post an image, or a video or commentary, you have to worry about what your contingent liability may be for allowing for this," he said. "For example, you could have contingent intellectual property infringement liability or you could have liability for libel."
Nonmedia companies should be looking beyond the standard commercial general liability policy for legal and insurance protection in the social media sphere. "The first option is to turn to the specialty media (insurance) market," ThinkRisk's Milton said. "We're seeing more nonmedia companies interested in supplementing their advertising coverage or replacing it altogether with specialty media coverage."
Milton and others are seeing a lot of interest from new businesses which want to use social media as the basis of their business. "People who are creating websites where they're sharing information and that website is their business are turning to this type of coverage, for example," Milton said.
"A buyer now needs to have coverage for all kinds of content partly because the insureds are doing new stuff (creating new media products) all the time," Milton said.
"What I'm seeing over the past four or five years is that companies are increasingly aware of the need for these coverages," Lowenstein Sandler's Chesler said. "They are selling very well now, especially the data breach coverages. I'm just not sure how the traditional policies will interact with the new policies. Right now these new policies are very robust. There are a large number of carriers offering them. You can customize to a great extent. You can either narrow coverages just for data breach, for example, or get broad coverages that include data breach, IP (intellectual property), defamation and the full range of those types of torts."
Most nonmedia companies still typically get their principal liability insurance through their commercial general liability policies. And for many decades, Jay Ward Brown of Levine Sullivan Koch & Schulz said, those policies provided advertising injury coverage that the courts construed broadly to cover most claims arising from communications by a business to the public.
"But over the last 10 to 15 years, the industry groups that draft commercial general liability insurance forms have been shrinking, deliberately, the advertising injury coverage in large measure in reaction to decisions by courts that have construed that coverage more broadly than the insurance carriers intended, and so the carriers have been adding language to shrink that coverage," Brown said.
Among other changes, Brown said, the new forms narrow the definition of what constitutes advertising. "What we don't have an answer to yet is whether writing on a Facebook wall, tweeting or engaging in online exchanges with customers either on your own website or on websites that are devoted to talking about a particular product or kind of business qualify as advertisements under this new definition.
"If they don't," he said, "then a company that has only a commercial general liability policy likely won't be covered for intellectual property claims or privacy-type claims arising from that post or tweet."
Echoing other experts interviewed for this article, Lowenstein Sandler's Chesler said: "I expect that within the next five years there will be a totally different type of media insurance market."
June 1, 2011
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