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Businesses face a host of liability risks when they or their employees use social media, yet only the largest companies have been using insurance to protect against such exposures, experts say.
Facebook launched in 2004 and Twitter geared up in 2006, and brokers and analysts in recent years have pegged social media as one of the next frontiers in potential liability for companies of all sizes.
Risk managers, consultants and attorneys have advised against participating in social media sites without adequate protections in place, including insurance that typically is designed for traditional media outlets.
But when it comes to updating their liability coverage to include defamation, libel, copyright infringement and other risks that can arise from company-sanctioned social media communications, most employers heeding those warnings tend to be the largest U.S. firms.
Small and midsize businesses rarely purchase social media coverage, say several experts who cited anecdotal evidence.
“They've been very slow to react,” said Richard Betterley, a Sterling, Mass.-based risk management consultant president of Betterley Risk Consultants Inc. and author of the bi-monthly Betterley Report, a guide for risk managers on specialty insurance products.
The reasons for small- and midmarket businesses' reluctance to purchase coverage to address media liability riskswhether as a stand-alone policy or as an addition to an existing policyare as varied as the risks themselves.
Mr. Betterley estimates that all media liability coverage purchased in the United States totaled about $200 million during 2010, about the same as 2009. The data does not break out purchases by company size.
Mr. Betterley said one probable reason owners of small businesses tend not to buy coverage is their assumption that their online communications, even through third-party platforms, don't rise to the level of publishing. Another cause may be the lack of documented instances in which owners of small businesses have been sued based on their social media activities, he said.
“Right now, those risks are mostly theoretical,” Mr. Betterley said. “I always say that you really don't want to be the first to suffer a big claim, but it's hard for a smaller business to buy insurance on that basis.”
To date, most defamation, libel and copyright infringement claims have been filed by businesses against individuals; Courtney Love and Kim Kardashian are two notable examples. But if claims against businesses for their social media activities become more prevalent, it could drive insurers to tighten restrictions on general liability and other coverage, forcing employers to seek protection under separate media liability policies.
“We're going to have to wait and see how the general liability market reacts to having claims come up, and whether or not carriers are going to start getting more restrictive,” said Joanne Richardson, the New York-based managing director of U.S. media at Hiscox Ltd. “That's definitely the direction that the market is moving in, but there just haven't been enough cases against those (general liability and employment practices liability) policies yet.”
Another errant assumption on the part of small and midmarket businesses using social media or whose employees use social media is that their current coverage is adequate, said Bradley S. Shear, Bethesda, Md.-based managing partner of the Law Office of Bradley S. Shear L.L.C. who handles social media cases and blogs on the subject.
CGL policies often include advertising injury, but can exclude copyright and trademark infringement. Insurers also have expanded EPL policies in recent years to include communications via social media, but that might cover only communications between employees. At minimum, Mr. Shear said, every employer should thoroughly review its existing insurance for gaps in coverage.
“Companies really need to understand the legal implications of their social media usage. One false move can really destroy everything you've built,” Mr. Shear said. “Is your business really worth one misguided tweet?”
Some smaller firms might assume that their social media activities don't equate to a liability because their audience is limited, but a small audience is no defense should there be a lawsuit, said Paul Paray, an intellectual property attorney and of counsel with Wilson Elser Moscowitz Edelman & Dicker L.L.P. in Florham Park, N.J.
“You could do things that you think are innocent and assume that not many folks are going to read it, or that it's your opinion or merely hyperbole so it should be protected, but that doesn't mean you won't get sued.” Mr. Paray said. “With regard to liability, the fact that it only goes out to a few folks as opposed to thousands is not really a factor.”
Sheer economics are likely a factor in small and midsize employers' hesitance to buy media liability coverage, said John Scirocco, president and CEO of the Hasbrouck Heights, N.J.-based brokerage Scirocco Group. As risk managers continue to identify overlapping risks in media, data protection, advertising and employment practices, the ability to justify the cost of coverage is primarily the province of larger companies, he said.
“These new portfolios for overlapping risks are really geared towards the larger, more sophisticated clients,” Mr. Scirocco said. “There's a price point beyond which it's not really cost-effective for small businesses to pursue that coverage. To some extent today, it's still a little bit out of reach.”
At the very least, many brokers and insurers advise companies to have internal rules governing company-sanctioned online communication as well as employee use of social media as it relates to the business.
In an April 2010 survey of 1,000 consumers conducted for Warren, N.J.-based Chubb Group of Insurance Cos., 64% of the respondents said their employer had no policy for talking about the company on social networking sites. More recently, Chubb's April survey of 1,000 consumers found that 51% of employers do not prohibit respondents from posting information about their company or their job on social media sites without authorization.
“If you don't have a policy in place, and there's nothing to refer to when there is a litigation or someone alleges that you violated a regulation, you have no way of showing that you had preventive measures in place before some employee went out and did whatever they did,” said Peter Foster, a senior vp at Willis North America's Boston office.