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Insurers target new media liability

As businesses move to the Net, lawyers aren't far behind, and a handful of insurance companies have begun writing policies that address online liabilities.

As businesses move to the Net, lawyers aren't far behind.

It's a situation that is prompting a handful of insurance companies to begin writing policies that address online liabilities.

The Chubb Group of Insurance Companies is one of the latest trying to get a piece of the action. It recently announced a policy that protects online companies from lawsuits for copyright and trademark infringement, plagiarism, and libel--which increasingly have been leveled at Internet service providers.

Chubb joins a rapidly growing field of insurance companies that offer new media insurance. They include Scottsdale Insurance, National Casualty, Media/Professional Insurance, and even the Association of Online Professionals.

"[Online insurance] has become increasingly common in the past year," said Maureen Dorney, an attorney who counsels new media companies at Gray Cary Ware & Freidenrich in Palo Alto, California.

The reason is simple. Service providers such as Netcom and America Online can't always control the volumes of material their subscribers post day in and day out. Because the companies have far deeper pockets than their users, the providers are named in suits brought over libelous or infringing content.

"In terms of getting some kind of insurance against third-party [usage] and the liability that can arise from it, there are so many risks out there and the attorneys fees alone are daunting," said Eric Schlachter, an attorney representing ISPs at Cooley Godward.

Examples of network service providers getting sued abound.

In April 1996, for example, AOL was sued for negligence after a subscriber posted a series of messages purporting to support the 1995 bombing of the Alfred P. Murrah Federal Building in Oklahoma City. The message claimed to be from an individual by the name of Kenneth M. Zeran, who subsequently was harassed by local radio shows and by numerous calls to his house. A federal judge dismissed the suit last March.

In another case, the Church of Scientology sued Netcom for copyright infringement after an individual used the ISP to publish allegedly infringing materials on the Net. The Church of Scientology and Netcom ultimately settled the case.

Neither case resulted in a judgment against the companies, but both likely faced hundreds of thousands of dollars in legal fees, attorneys estimate.

To help companies manage their risks, insurance companies are now offering insurance that will cover attorneys fees and potential judgments that arise from lawsuits against the services. In many cases, coverage will extend to those who provide content, such as forum hosts and system operators.

Chuck Leinas, vice president of insurance broker Sullivan & Curtis in Seattle, says he sells policies that cover areas such as forum hosts, and offers $1 million in protection. The deductible depends on the particular policy, but generally ranges from $500 to $1,000, he says. After that, companies are both indemnified as well as covered for defense fees.

Other insurance brokers offering similar coverage include Poulton Associates, InsureCom and AON Risk Services.

Leinas warns that companies shopping the new media insurance market need to find a broker specializing in new media coverage. "Make sure they're doing it on a regular basis and understand the online community," he suggests. "There are quite a few underwriters and brokers who don't understand the Internet."

Companies considering online insurance also need to examine the policies carefully, said Michael Overly, a Newport Beach, California, attorney specializing in Internet law.

"You need to make sure they will defend you, but also that they will indemnify you for any damages that are assessed," says Overly. "People have learned to their horror after a lawsuit that they're not indemnified."

Because online coverage is still relatively new, Overly adds, prices are likely to remain high for the next few years, while insurance agencies assess what their costs are.

"It's going to take a few more years until the premiums accurately reflect the risk that the insurance companies are assuming," Overly said.