ONLINE LIABILITY INSURANCE

IVAN HOFFMAN, B.A., J.D.



        I have previously written about “Publishers Liability Insurance” in which I discussed issues related to the world of offline, print publisher liability and the insurance coverage related to that activity.  In that article I stated: “The publisher should obtain specific coverage for any online activities since not all policies cover this type of business.”  The within article expands on the particular issues that relate to the online world and the need for specific coverage for these issues.

        However, it is not just “publishers” in the traditional sense of the word that need such insurance.  Any business that operates a web site, chat room, discussion area and otherwise engages in online activities is potentially vulnerable to claims and all those businesses should strongly consider such insurance.  Thus, in this article I will refer to the operator of such businesses as the “owner.”

        Given the uniqueness of the Net, areas of potential claims vary widely from that in the offline world.  Thus, depending upon the nature of the owner’s site including any future applications, the owner should consider obtaining insurance to cover these areas including those future areas.  Clearly this list is not intended to be exhaustive since the Net is in a state of constant change and new legal issues potentially arise with the advent of new “gee whiz” technologies and applications.

Content Related Issues

        Clearly any content on the site has the potential to raise issues about copyright and trademark infringement as well as defamation and invasion of privacy issues.  Often an offline liability policy will not cover online applications.  Furthermore, sites that provide information such as financial information, health-related information, indeed virtually any sort of information that visitors may rely on can be subject to claims.  These claims against the owner can arise whether the owner is the creator of that content or a licensee of some third party content.  As with the offline world, any acquisition agreements with writers, artists, licensors and others should contain appropriate warranties and indemnities but these are often illusory if the warrantor has no or little assets to protect the owner.  Thus the need for insurance arises.

        Sites containing content should definitely have a “Terms of Use” and “Disclaimer” appropriately posted on their site but under the present state of the law,  the validity of such pages may be open to question and thus having insurance gives an added level of potential protection.  Read “Disclaimers.”

        Further, the owner should be aware of the requirements of the Digital Millennium Copyright Act (DMCA) with regard to how the owner must respond to claims made by third parties as to content posted on the owner’s site.  Read “The Notice and Take Down Provisions of the DMCA.”   While if all aspects of the owner’s obligations are fulfilled the owner may be shielded from liability for copyright infringement, insurance is still a very good idea because there may be gaps in protection under the DMCA that insurance can cover.

        Additionally, there may be liability created by linking and “crawling” as well as the use of meta tags and keywords.  Read the articles on my site under these titles.

        Moreover, there is the entire area of great potential exposure when dealing with children online including but not limited to issues related to compliance with the Children’s Online Privacy Protection Act and obtaining verifiable parental consent.

Hosting Issues

        By “host,” I mean not only owners that do actual site hosting, but owners of sites that host interactive activities such as chat rooms, message boards and the like.  The DMCA provides for a definition of “service provider” and it is much broader than you might believe.  Read “Are You A 'Service Provider'?”   In addition to issues related to hosted content discussed above, site hosting poses issues related to failure of servers, hackers including loss of data and credit card information, viruses and other such problems that may arise.  A good hosting agreement should disclaim the host’s liability for these events but any good attorney can tell you that disclaimers of liability are subject to being voided by a court and thus the prudent owner will have insurance to cover these contingencies.  Such insurance should cover the role of the owner as a host.

Partnerships and Affiliation Agreement Issues

        Online relationships pose potential legal liability that an owner should consider insuring against.  Often these relationships are ill defined and that lack of clarity may raise questions.  Read “The Strategic Alliance.”   Even if the agreement defines the relationship between the parties, there may be situations in which a third party, not a party to the agreement, may seek to sue the owner based on the conduct of the “strategic partner.”  See also the discussion above regarding linking and crawling issues that may become relevant in such relationships.

Software Developers and Application Service Provider Issues

        The development and providing of software is fraught with potential liability including but not limited to issues related to the performance of the software, crashes, network issues, security holes etc. etc.  There may also be patent infringement claims lurking as well.  All of these should be covered in an appropriate policy.

Membership Site Issues

        Issues here relating to sites that do dating services (as but one example) of one sort or the other present issues related to liability for the conduct of members or others.  This may include physical and emotional harm.  Read “Membership Agreements.”  Furthermore, as discussed above, any site that provides information that its members (or visitors who are not members) may view and rely on, whether rightly or wrongly, can create the bases for claims.  Again, the membership agreement or Terms of Use may disclaim such liability but having insurance adds to the level of protection potentially available since disclaimers are often viewed with skepticism by courts.

Conclusion

        The costs associated with claims made against an owner can be staggering even if the claims are baseless.  Attorneys fees, filing, discovery and other costs including ultimately having to pay damages and even the other party’s attorneys fees and costs can bankrupt a company.

        An appropriate liability insurance policy can go a long way to protecting the owner against claims as well as these costs.  Owners everywhere should seek out such insurance and have any policy reviewed by the owner’s attorney.  Not all policies are created equal and there may be gaps in coverage in one policy versus another.

An entrepreneur knows that costs associated with insurance are not simply about absolute cost but instead are about obtaining value.  As an example, a hundred dollars spent foolishly is not the same as a hundred dollars that produces five hundred dollars in cost savings, income etc.  Insurance can be a value add to an owner’s business.

© 2001 Ivan Hoffman

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This article is not intended as a substitute for legal advice.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  You should consult with an attorney familiar with the issues and the laws.
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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

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