November 30, 2009 | last updated May 26, 2012 9:18 am
FINANCIAL SENSE

Tweet Twice For Social Media Insurance

The Hartford Financial Services Group is adding a new twist to its cyber insurance policies, expanding the coverage to include liabilities associated with social media.

Drew Bartkiewicz, vice president of cyber and new media risk at The Hartford, said the coverage is meant to protect companies that are increasingly using social media as part of their everyday business, including for marketing or adverting purposes like creating and promoting user-generated contests.

The policy includes coverage for various social media liability exposures by employees or casual users of a company's Web site, including online defamation, advertising, and libel and slander.

Bartkiewicz said the coverage is important because social media is still a very untested area of law and business practice. He said the cost to leverage social media for a company is relatively cheap, but the uncertainty and potential liabilities associated with it could be expensive.

"Social media is so new that a lot of companies don't yet understand the risk," Bartkiewicz said. "Businesses can't operate in this environment with reckless abandonment, or else there are going to be some hard lessons learned."

Cyber liability insurance has been coming into its own in recent years, but has largely focused on coverage related to data breaches, including insuring expenses associated with data recovery and business interruption, and crisis management costs like the notification of affected parties and investigations by outside experts.

But the rise in popularity of social media is creating a new landscape for cyber risks, Bartkiewicz said.

The primary risk is false advertising and liability, especially in situations where companies use bloggers or community members to speak positively on their behalf, or to denigrate their competitor, Bartkiewicz said.

Blurring Liability

Lawsuits involving companies using customer-generated content to support their brand have already crept up. In 2008, for example, Subway filed suit against its chief rival Quiznos and the Web site iFilm.

Quiznos sponsored a contest in which customers provided user-generated commercials depicting people choosing Quiznos sandwiches over Subway.

In its lawsuit, Subway claimed that the consumer videos contained "literally false statements" and portrayed Subway in a "disparaging manner."

The case raised the question of liability: the users who made the denigrating remarks, or Quiznos for sponsoring the social media contest?

Bartkiewicz said that when companies leverage bloggers or community members to speak positively on their behalf, it oftentimes blurs the line between company advertising and word of mouth, creating a gray area in terms of legal liability.

"There is always a question of who is the liable, the blogger or the company," Bartkiewicz said. "But legal attention always turns to the entity that has insurance."

Earlier this year, the Federal Trade Commission tightened oversight on bloggers and other online social media platforms by requiring all online writers to disclose whether they're getting money or free goods from companies they review products for.

The new rule goes into effect in December, and raises the stakes in potential legal liabilities for companies that use user-generated content, Bartkiewicz said.

If bloggers are getting paid by a company they are writing about and don't disclose it, it could lead to potential lawsuits.

Product Infringement

Other potential liability exposures associated with online social media include product infringement.

In 2008, for example, eBay was ordered to pay over $60 million to luxury goods company LVMH, the makers of Luis Vuitton products, for allowing counterfeits of its goods to be sold on the Web site.

LVMH argued that its business was hurt by the sale of fake handbags and clothes on eBay, and eventually won the settlement.

Bartkiewicz said the new coverage is aimed at midsize and larger companies with $50 million in revenues and up. But during the first half of 2010, The Hartford will be offering a similar coverage aimed at smaller companies as well.

Greg Bordonaro is a Hartford Business Journal staff writer.

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