For technology sector companies, new media outlets and emerging technologies have resulted in exposure to previously unknown liabilities.
While insurance coverage is available and enforceable to protect companies against many of these exposures either under traditional policies or newer coverages designed specifically for these risks it is important to understand the scope and the limitations of the coverages and to know when steps need to be taken to avoid an uninsured, and potentially serious, liability.
Trademark and Trade Dress Infringement Claims
Biomedical and technology companies must increasingly confront intellectual property lawsuits seeking damages for trademark and trade dress infringement, where the claimant typically alleges that the company's use of a mark, a look or an image has infringed the claimant's exclusive rights.
Quite appropriately, the company faced with such a suit turns to its liability insurance carrier for defense and payment of any judgment or settlement that may result. Frequently, insurance companies have disputed coverage for such claims under their general liability policies, but recent trends in coverage law have confirmed that coverage does in fact exist for these torts under the advertising injury provisions in the standard form commercial general liability(CGL) policy.
To enforce advertising injury coverage, the insured has two hurdles to overcome: (1) showing that the claimant is asserting one of the listed advertising injury offenses, and (2) demonstrating that the offense happened in the course of advertising the insured's products or services.
In the recent cases, the courts have found that a third party's claim contending that the insured has unlawfully used or taken the plaintiff's mark or style of doing business is a covered offense, satisfying the first prerequisite for coverage. Just as significantly, the courts have generally found that trade dress and trademark infringement necessarily occurs in advertising, and meets the second requirement for coverage.
The Internet
While the Internet has created tremendous opportunities for entrepreneurs from online services to content providers to creators of 3-D graphics it has also given rise to a number of potential liabilities. Because existing insurance policies were not created with these liabilities in mind, Internet users and entrepreneurs need to be aware of the scope of their coverage and the gaps that may exist.
The standard general liability policy, for example, expressly covers defamation. But are online computer services (or their users) covered when allegedly defamatory statements are posted on an electronic bulletin board or published in an electronic newsletter?
The controversy in the underlying defamation case turns on control -- and knowledge. Wherean online service acts essentially as an electronic library, with little or no editorial control over content, the service has been held not liable for defamation. However, where the service holds itself out to the public as controlling the content of its electronic bulletin board, it acts as a publisher and not simply a distributor of information, and can be liable for defamation.
>From an insurance point of view, these issues take on another light. The typical CGL policy does not cover defamation by companies that are in the business of advertising or publishing. The online service that acts merely as an electronic library may well obtain a defense and coverage for a suit claiming it distributed defamatory statements. In contrast, a service that acts as a publisher in control of content may find itself excluded from coverage.
Some Internet providers may find that coverage for their activities does not fit easily within the traditional general liability policy. For example, companies whose business involves the advertising of products, goods and services on the Internet could run afoul of the business of advertising exclusion in the general liability policy. By obtaining (before the fact) aspecialized media perils or multimedia professional liability policy, these companies can avoid disputes with their insurance companies after a suit is brought.
The value of knowing your insurance in advance, and enforcing its protection once a claim is brought, cannot be overstated.
Summary
To sum up, the best strategy to deal with the insurance issues posed by new technologies involves a combination of three elements: (1) loss prevention measures, to prevent the loss before a claim occurs; (2) insurance placement, to take advantage of new policies that may cover the loss; and (3) vigorous enforcement of existing coverages, to maximize the company's overall insurance benefits.
Cindy Roth is a vice president at Johnson & Higgins, the largest privately held insurance brokerage consulting firm in the world. Grace Carter is a partner in the Los Angeles office of PHJ&W.