LONDON-Risk managers must realize that even internal electronic mail messages can expose them to libel suits, U.K. attorneys warn.

A recent out-of-court settlement in England illustrates the point.

Norwich Union Healthcare Ltd., the medical insurance subsidiary of Norwich-based insurance conglomerate Norwich Union P.L.C., is paying rival health insurer Western Provident Assn. Ltd. 450,000 pounds ($749,250) in damages and costs after NU employees spread damaging rumors about WPA via NU's internal e-mail system.

It is the first time a corporate libel lawsuit involving e-mail has been brought in the United Kingdom by a corporate plaintiff, lawyers point out.

This case won't be the only one of its kind, though, predicted Keith Mathieson, a lawyer who specializes in U.K. libel law.

Until now, "people haven't focused on the fact that e-mail is another form of written communication. The dangers are great, because people are inclined to think of e-mail as a telephone, where they can say what they like," said Mr. Mathieson, a partner with London law firm Davies Arnold Cooper.

"All companies need to take a careful look at their internal e-mail procedures," he said.

This case and the increasing use of e-mail and the Internet for business purposes have important risk management implications, agreed Chris Holden, director of professional standards for the Assn. of Insurance & Risk Managers.

In an open court statement July 17, lawyer David Engel, acting for WPA, noted that "rumors were disseminated by some of Norwich Union's staff via its internal e-mail system with the result that they could be used to the detriment of Western Provident Assn. in order to obtain new business."

The rumors, which were circulating among insurance brokers, clients and potential clients of WPA and the medical insurance industry generally in the middle of 1995, suggested WPA was insolvent and/or being investigated by the Department of Trade and Industry and/or in financial difficulties and therefore unable or unwilling to write any new insurance, said the statement.

WPA has provided health insurance services since 1901 and is one of the United Kingdom's largest 100 companies, according to the statement read in court.

Norwich Union now admits that "there was no truth in any of the allegations (about WPA) and that (WPA) was not under investigation by the DTI, its solvency margins were and are very healthy and it was and remains well able to write new insurance; and it was certainly not in financial difficulties," Mr. Engel, a lawyer with the media litigation group of London law firm Theodore Goddard, said in court.

As a result, NU agreed to pay WPA 450,000 pounds "by way of damages and costs and to undertake to the Court never to repeat the allegations or any similar allegations," said Mr. Engel.

Company officials "deeply regret and sincerely apologize to (WPA) for dissemination of the rumors," David Sherborne, a lawyer with NU's law firm, Sheridans, said in court.

Mr. Sherborne also noted that "Norwich Union has made every effort to ensure that such unacceptable practices do not occur again."

Norwich Union and lawyers from Sheridans would not comment on measures that had been undertaken to prevent such practices from occurring again.

Mr. Engel, who specializes in libel issues and in Internet libel in particular, said the case is the largest e-mail libel case yet to be brought in the United Kingdom and the only case brought by corporate plaintiffs to his knowledge.

Although there have been several e-mail libel cases in Australia and the United States, these have involved information transmitted over the Internet and not through internal e-mail systems, pointed out Mr. Engel.

Companies using internal e-mail systems should learn several lessons, he said.

Employers "must provide employees with guidelines" on e-mail use, and employees must be careful about what they put on e-mails, he warned.

Under U.K. libel law, e-mail is just another form of publication, and an employer becomes responsible as a publisher for his employees' e-mail messages, said DAC's Mr. Mathieson.

If a message is defamatory, the sender of the message-and the company whose e-mail system has facilitated it-may be liable for defamation, even if the message has a very restricted circulation, according to Mr. Mathieson.

"A message which is sent merely by one employee to another within the same organization can be actionable if it contains defamatory statements about a third party," he noted.

Although the case was settled out of court and no court opinion issued, it set at least one precedent, in that WPA obtained a court order that NU should preserve the relevant e-mail messages and release them to WPA, said Mr. Engel.

Many people believe that e-mail messages are gone once the recipients discard them. This is certainly not the case, because all messages are recorded, noted Mr. Engel. Some experts claim that even after the messages have been wiped from tapes, they still can be deciphered, he added.

"E-mail presents particular risks. Mr. Mathieson noted. "In truth, e-mail is potentially one of the most lingering methods of communication. It may also be one of the least private and least easy to control since it can be copied, forwarded and accessed by large numbers of people within an organization and, via the Internet, sent outside the organization to computer users anywhere in the world."

The risk of e-mail libel still is not recognized by many companies that may also be uninsured, observers note.

Most standard property/casualty insurance policies do not cover libel, said Ken Bolland, assistant manager of the business development unit of Guardian Insurance Ltd., in Ipswich, England.

"A standard public and employers liability coverage would not cover libel, and most companies would not be covered for such a risk" unless they were in the publishing or communications sector, he said.

Mr. Mathieson agreed that e-mail issues create a business opportunity for the insurance industry as companies "would need a special libel extension to their property/casualty cover."

Meanwhile, law firm Davies Arnold Cooper is sending more copies of its e-mail guidelines to clients as a result of the case, said Mr. Mathieson.

The law firm produced a protocol on e-mail prior to the NU-WPA case that it gave to clients on request. "But we have received several phone calls in the last week and are now sending the protocol to all clients" for whom it is appropriate, said Mr. Mathieson.

Advice offered in DAC's protocol includes:

Do not use e-mail if you would be uncomfortable sending the message by other permanent forms of communication.

Take time to present important e-mail messages clearly. The informality of e-mail often leads to sloppy messages that can be misunderstood. Before sending an e-mail message, consider whether it could be misconstrued and how a judge might interpret it.

E-mail messages can be transmitted to many people without restriction. If it is confidential, mark it accordingly.

If a message is important, retain it. Do not rely on the recipient to retain a copy.

Make sure all statements about persons and organizations are true. Do not use e-mail for gossip.

Copies of the full E-Mail Protocol can be obtained from Keith Mathieson in London at 44-171-936-2222; e-mail Kmathies@dac.co.u.k