So social…so liable
A conversation with an attorney on the ramifications of social media exposures
By Bruce D. Hicks, CPCU, CLU
If you make your living in nearly any aspect of property/casualty insurance, you may be increasingly affected by the Internet and, particularly, social media. Social media's rising prominence is accompanied by significant loss exposures. What is your level of awareness regarding social media liability loss exposures? How do you minimize or avoid them? Have you spent enough time to learn where you might seek protection against such losses?
We spoke with Daniel Maldonado, an attorney at Kunz Plitt Hyland & Demlong, P.C., who is also an associate author of the nationally renowned coverage reference Couch on Insurance, 3d. He has created a presentation that is designed to raise awareness of exposures related to social networking.
RN: What is Social Media Liability?
Maldonado: I would define Social Media Liability as liability exposure to claims for libel, slander, harassment, invasions of privacy, violations of intellectual property right and even improper employment practices resulting from the use of social media sites, including Facebook, Myspace, Twitter, YouTube, blogs, etc.
RN: What led to your interest in social networking loss exposures?
Maldonado: I use social networking for both personal and business reasons. As an avid daily user, I noticed that individuals were posting things on the Internet that if done in a traditional publication would constitute defamation, invasion of privacy, or other claims. Because my legal practice handles complex insurance coverage and litigation involving, among other things, personal injury coverage for traditional defamation and invasion of privacy claims, it was a natural fit to extend that practice to social networking losses.
RN: What coverage options exist in standard commercial and personal lines products to deal with social media liability exposures? Do you know of any products in development?
Maldonado: Most commercial insurance policies include personal and advertising injury coverage that provides protection in general for libel, slander, and derogatory remarks as well as invasion of privacy. Some homeowners policies also provide personal and advertising injury. My experience with renters policies is that some carriers may provide coverage for personal and advertising injury while others do not. The 2001 ISO Form, Form CG 00 01 10 01 (Commercial General Liability Form), added the language "material placed on the Internet or on similar electronic means of communications" to the definition of advertisement.
The 2001 commercial lines ISO form also defined the enumerated offenses, which include "oral or written publication, in any manner that slanders or libels a person's or organization's goods, products or services;" and "oral or written publication, in any manner, of material that violates a person's right of privacy." The addition of the phrase "in any manner" takes into consideration electronic communications via the Internet or other similar medium.
The 2001 ISO form also added Exclusion K – Electronic Chatrooms or Bulletin Board and excludes personal and advertising injury arising out of an electronic chatrooms or bulletin boards hosted, owned or controlled by the insured. Because chatrooms are not as prevalent as they were in the early 2000s, this exclusion will likely not apply to social networking sites like Facebook, Twitter, Myspace, LinkedIn, etc.
RN: What prominent examples can you share that demonstrate some of the issues that insurance professionals should be concerned about?
Maldonado: Agents should be concerned about individuals who post blogs or maintain watchdog Web sites of products because these individuals may be susceptible to claims of defamation or invasion of privacy. Even casual users of social network sites may inadvertently post comments about a current or former lover that are defamatory, especially after a divorce or breakup because of a sordid affair. The agent/broker may want to ensure that any personal lines policies procured include coverage for personal and advertising injury if such coverage is optional or can be obtained via endorsement.
RN: Is there a significant difference between business and personal networking-related exposures?
Maldonado: Business and personal exposures may overlap in general. However, there are some differences. Businesses networking related exposures are typically related to business activities. Businesses may, for example, misattribute the ownership of a Web site to a lower level employee so as to avoid connection to the business. The lower level employee may sue for false light invasion of privacy, especially if the Web site contains sordid or proprietary material. Business managers may also announce termination of their employees or disclose personal information about their employees that may result in exposure. Employees posting information or videos about their employers may be protected by state or federal statutes if their conduct constitutes protected activity, e.g., opposing unlawful discrimination or other employment practices.
Personal networking-related exposures run the gamut of claims that can be asserted in the traditional arena, including accusing individuals of crimes, infidelity, failure to pay child support, disclosure of personal or financial information, posting of pictures or videos in compromising positions, etc.
RN: What are the typical costsof claims/lawsuits involving libel, slander, etc., particularly those involving social networking? And are defense costs, potentially, a higher concern for insurers?
Maldonado: Because such claims may involve historical postings, defense costs may include electronic discovery, which is not typically required in the traditional claim. Because this electronic discovery may include subpoenaing information from the social networking site itself, the costs may increase if the social networking site fights discovery or the claimant seeks overbroad discovery (e.g., the defamatory statement is made on Facebook, but the claimant wants discovery of all postings made by the insured on any social networking site). In addition, venue may be an issue with these cases more so than with traditional cases given the national and international reach of social networking sites. Depending on the nature of the claim, the insured may be faced with multiple lawsuits in multiple jurisdictions including outside the United States. Defense costs may reflect extensive jurisdictional and venue disputes that must be addressed first even before the merits of the claim.
RN: following up on the question regarding costs associated with social media claims—Is it likely that such claims may more readily involve reservation of rights and bad faith disputes?
Maldonado: Insurers will likely issue reservations of rights in cases involving social media claims primarily because of two exclusions—the Knowing Violation of Rights exclusion and the Knowledge of the Falsity exclusion. These exclusions are similar to an intentional act exclusion. Given the nature of the specific social media claim, the insurer will likely assert that the insured knew that it was posting material on the Internet that was defamatory or that invaded the privacy of an individual. Because this is generally a fact issue, it is in the best interest of the insurer to reserve its rights rather than decline defense of the case or deny coverage.
Because defamation and invasion of privacy are, by their nature, intentional acts that are specifically covered by the policy, insureds have argued that the carrier is acting in bad faith by relying upon the Knowing Violation of Rights exclusion and the Knowledge of the Falsity exclusion. There is a split in the jurisdictions as to this issue.
RN: Is there a danger that insurance customers may confuse social media liability with cyber liability or similar terms? Is social media liability a standardized term or would it make more sense to refer to traditional language?
Maldonado: The terms can be confusing. Social media liability is essentially personal injury covered by policies that result from the same personal defamatory acts and invasions of privacy but in the context of the Internet. Cyber liability is essentially advertising injury covered by policies that result from a commercial business's advertisement of its products or services that can result in defamation of another organization's products or services or copyright infringement, but in the context of advertising on the Internet.
To my knowledge social media liability is not a term that has been adopted by the insurance industry yet. I would presume that as it becomes more common in the vernacular of popular culture, the insurance industry might adopt the term. At this point, insurance policies are simply referring to the traditional terms of "personal and advertising injury" and extending this traditional coverage to social media and the Internet, as explained in a prior response, by including in the 2001 ISO form the phrase "in any manner" as it relates to oral or written publication. It ultimately makes more sense to refer to social media liability specifically so that the insurer can evaluate whether it will want to provide coverage for such risks since exposures are great and so insureds will clearly understand whether social media losses are in fact covered by the policy.
RN: Does social media present any new wrinkles with regard to libel, slander or invasion of privacy exposures?
Maldonado: Most individuals do not have the means to communicate broadly to each other in the traditional realm, other than making comments to the news media. Social media makes it easier to libel, slander or invade a person's privacy because off-the-cuff comments are now published nationwide or internationally, as compared to a comment made at the water cooler or in the privacy of one's home. As a result, the damages sustained by a claim can be more substantial because there are more people aware of the comments as compared to the traditional situation.
RN: What advice, customer education should or could carriers and producers provide to increase customer awareness?
Maldonado: Carriers/producers should make customers aware of the legal potential if their customers utilize social media and the proclivity of such claims that can result if defamatory comments are made about family members, friends, exes, etc., and that they are not immune from suit simply because they make such comment on Facebook or Tweet such comments. If a customer does utilize social media, then offering optional personal injury coverage as part of a homeowners or rental policy is recommended. It can also be a selling point as an additional reason for e-commerce customers to obtain CGL coverage because personal injury coverage is traditionally included.
RN: What insurance or risk management strategies should commercial and personal insurance customers take to minimize their social media liability exposures? For instance, should individuals consider umbrella coverage or activities that might be avoided, such as blogging?
Maldonado: Given the potential large exposures, especially for commercial customers, umbrella coverage is definitely recommended. Umbrella coverage is also recommended for prolific social media users and bloggers. Although encouraging people to avoid high-risk behavior is laudable, given the popularity of social media, it is unlikely that individuals will avoid social media or blogging altogether and may inadvertently engage in behavior that results in social media liability, especially given the personal/emotional aspect of such claims. Individuals should evaluate the risk potential and realize that coverage for social media liability may become a necessary part of everyday life, similar to auto insurance or home insurance. Carriers/producers should market and package such coverage to customers so that they come to embrace the need for such coverage.
RN: Recently there have been media stories concerning companies, schools and other entities which have required job applicants, students and other individuals to share Facebook account passwords. How might policies held by such entities address exposures created by password accessibility requirements?
Maldonado: The first thought that comes to mind is whether there is, in fact, an invasion of privacy. The employees or students will be hard pressed to assert an invasion of their privacy when they, in fact, consent to the employer or school having access to their Facebook pages. Even if they could assert an invasion of privacy claim, the claim would likely be covered under Coverage B – Personal and Advertising Injury. It meets an enumerated offense—invasion of privacy.
However, Coverage B generally contains a knowing violation of rights exclusion that precludes coverage when the insured commits an injury that was caused by or at the direction of the insured with the knowledge that the action would violate the rights of another and inflict personal injury. Not all policies do. Obviously, if the policy does contain a knowing violation of rights exclusion, then the analysis is done. The claim is excluded. If the policy contains a knowing violation of rights exclusion, then if the employer or school reasonably believed that they had consent of the employee or student to view the Facebook page, the exclusion will likely not apply because the employer/school did not knowingly violate the rights of the employee/student. Consequently, if the employee/student can establish an invasion of privacy (which is doubtful), then Coverage B will ultimately provide coverage.
However, Coverage A (bodily injury or property damage coverage) is likely not triggered. Coverage A requires an occurrence; i.e., accident. However, the act of monitoring the FB account is not accidental but an intentional act. In addition, it will likely be excluded by the intentional act exclusion contained in the policy.
Bruce D. Hicks, CPCU, CLU, is senior editor for Technical and Educational Products at The Rough Notes Company. He has more than 30 years of property/casualty insurance experience including personal and small-business underwriting as well as compliance duties for several national and regional insurers. Active in the Chartered Property and Casualty Underwriters (CPCU) Society, Bruce served as Governor from 2007 through 2010.