E-COMMERCE
There have been several examples over the past six to eight months of how vulnerable Web-based technology can be. The so-called "Love Bug" computer virus and the hack attacks that shut down some of the more popular Internet sites received the greatest publicity.
All this has focused more attention on Internet security and fostered a rush by insurance companies to come out with new insurance policies to deal with some of these problems. Just what do these policies offer in terms of protection and how necessary are they to most businesses? The answer is, of course, it depends. It depends on whether you merely use the Internet as an advertising medium, actually do business over the Internet or provide Internet-related services.
For the Internet service providers (ISPs) and their kin, there are specialized Errors & Omissions policies that are beyond the scope of this article. For the rest of us, there are new policies that offer "enhancements" to Commercial General Liability coverage for Web-based advertising activities. As we pointed out in our last issue, however, such "enhancements" may be unnecessary, unless you are furnishing advertising services for others or have been unable to achieve truly worldwide coverage through your Excess "Umbrella" Liability policy.
The other aspect of this situation that is being exploited by insurers is the damage that can be caused by vandals hacking into your system and either destroying or stealing data. In addition, viruses such as the "Love Bug" that use e-mail for replication can cause a recipient to shut down its e-mail system to avoid further damage. If the company relies on e-mail to do business, this can mean a substantial loss of business.
A properly constructed Property insurance program, on the other hand, may be sufficient to address such risks. If it covers "All-Risks," includes EDP media and equipment, and provides Business Interruption coverage, most of this exposure should be dealt with. There may be a question whether "physical loss or damage" includes damage to computer programs and data, since it is not defined in most policies and the courts have not addressed that issue yet. Furthermore, the insurance industry has argued that programs and data are not tangible property that is insurable under a typical Property policy.
Although a valid argument can certainly be made that it is tangible property subject to physical loss or damage, it would be advisable to include language, by endorsement or otherwise, to the effect that "physical loss or damage" includes "destruction, distortion or corruption of any computer data, coding or software." This would avoid a coverage argument in the event of a loss, and a subsequent loss of income due to the shutdown of your computers and/or e-mail system should be a covered Business Interruption loss. Then, all you'll have to argue about is the valuation of the loss.
This is not to say that many of the new offerings for e-commerce insurance are worthless, though. Some include risk assessments, often conducted online. And there are certain areas that may not be covered by your more traditional CGL, Property and Crime policies, such as cyber extortion and violations of certain intellectual property rights beyond the usual infringement of copyright, trade dress or slogan covered by the CGL.
An example of cyber extortion occurred when hackers broke into an e-retailer's site, stole 300,000 customers' credit card numbers and threatened to publish them on the Web unless they were paid $100,000. If you have that kind of exposure, you are going to have to look at a very specialized policy if you want insurance coverage.
In addition, if you are looking for insurance protection for your domain name, or coverage should you be sued for trademark infringement, or some other error or omission in providing services over the Internet, you are going to have to look at a media policy.
The first thing you need to do is take a close look at precisely what your company is doing on the Internet and assess the risks it is exposed to in the process. Then, make sure your traditional insurance program is able to deal with these risks, to the extent possible. Finally, if there are any areas left exposed that you do not feel you can appropriately self-assume, you may want to look at some of the more specialized products becoming available from the insurance industry.
-- Christopher B. Ashton, CEBS
Vol. XIII, No. 3
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In this issue, we continue to explore the emerging subject of cyber liability and where to look for coverage of the various exposures, both new and old, that go along with increased Internet activity. It is interesting to note the number of insurance companies that have rushed new policies into print to take advantage of the uncertainties that abound in this area. Some of these policies can fill specific needs, but they are being widely marketed to just about anyone with Internet access. We are also trying something a little different in connection with the Personal Insurance Corner, a feature that has been a part of Analysis & Comment for over 12 years. We have gone pretty far afield in recent years to find new topics of personal insurance to discuss, and we realized that some of the more basic matters we talked about early on may have continuing relevance. Consequently, we are going to dust off some of the earlier columns and use them occasionally. In this issue we deal with the concepts of Named Perils, "All Risks" and Replacement Cost in Homeowner's insurance. Finally, we would like to take this opportunity to announce the well-deserved retirement on 8/1/00 of Barbara Lang, a risk management consultant who has worked for Aldrich & Cox, Inc. for over 22 years. Among Barb's responsibilities were assembling and reviewing loss data, analyzing experience rating data and checking premium audits and dividends. We wish we had kept track of all the money she has saved for our clients over the years because we are certain the total would be substantial. She is certainly going to be missed, but we wish her nothing but the best as she embarks on a more relaxing phase in her life. --- Ed.
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