Some Notes about Liability Insurance Issues
Issues of liability and casualty
insurance are mentioned at various places on this site, and I wanted to
summarize some unusual observations I have noted in my experience with the
subject.
Umbrella
Insurance:
This is generalized personal liability
insurance, with coverage typically available up to two million or more. It is generally offered as an additional
coverage on auto and homeowner’s policies, and typically a company will require
that you have both homeowner’s and auto with them (or you may get it through a
professional liability policy, as below).
Also, in these days of litigiousness, it is well to increase one’s auto
liability coverage beyond the typical $300000 and this is often available only
through umbrella policies.
By
itself, umbrella insurance generally does not cover professional
liability. Still, the coverage often is
not available on standard policies for “professional athletes” and
“entertainers.” It is not clear what insurance
companies would do with customers who entertain on the side but don’t make a
living at it. Umbrella insurance offers
libel and slander protection but usually only in the context of non-commercial,
personal activity (such as for postings made on Internet discussion boards but
not for intellectual property offered commercially for sale or for web activity
intended to support commerce). It would
probably protect a member of a non-profit political organization for statements
made for that organization as long as there was no commerce involved.
One
other item of interest, is that auto insurance is one
world in which “discrimination” is perfectly acceptable and expected. Men pay higher premiums than women, and older
drivers pay lower premiums than younger men.
Young single men pay the highest rates, and this may be more a function
not just of inexperience and hormones (and brain physiological maturity) but
also of the social conditioning of young men in our culture. One interesting question will be whether the
insurance companies will want to rate the experience of couples in civil
unions, as in
Media
Risks Insurance or Media Perils Insurance:
This
generally covers writers or authors and publishers. It has always been very
expensive, generally underwritten for celebrities; but recently group policies
have become available, as well as cheaper policies associated with professional
liability insurance. It would cover copyright infringement, libel, invasion of
privacy, right of publicity, or other intellectual property perils, including
litigation defense costs and probably the payment of legal costs to publishers
choosing (often inconsistently) to enforce their (arguably unfair)
indemnification clauses. It usually will not cover trademark problems, which
fall under business insurance (below). There is some controversy over the
coverage of self-publishers (especially those publishing repeatedly on the Web)
since they do not have the deep pockets and economic scale for the legal due
diligence usually enforced by larger and established trade publishers, although
a few companies offer it as “intellectual property” coverage as part of general
commercial insurance [and in these cases there is probably the expectation of
economic scale]. Adult entertainment (without redeeming social value) generally
is not covered by reasonably priced policies, and there are difficulties over
insuring “controversial” material that may be perceived as on the “borderline”
of adult by some people.
The
rise of blogging and social networking sites brings to mind possible questions
about media perils (or “media risks”) insurance. Insurers probably would not
want to cover this because of the unpredictability of the risk and the difficulty
of assessing the liability risk posed by “amateurs” less well-trained than
professional journalists in the law. Some bloggers
may run risks when they target specific persons (like politicians) or specific
companies, but other bloggers stick to issues and run
little or no practical risk of litigation. Electronic Frontier Foundation has
raised concerns about SLAPP lawsuits, intended to intimidate protest speech.
(See this link for
these concerns). Social networking site profiles have been known to attract
security risks to families and schools. Even so, the percentage of “amateur
speakers” actually sued is very low compared to the percentage of lawsuits
against traditional bricks and mortar commercial publishers (for libel or
invasion of privacy, for example). Another remote risk could be government
prosecution because of the vagueness of some laws, such as COPA (Child Online
Protection Act) which is now under constitutional challenge and at trial (Nov
2006).
All
of this is little explored so far, and could lead to attempts by insurers to
exclude blogs and similar materials from umbrella
policies. There is little yet on the web about it (as of Nov 2006), but a few
homeowner’s policies have been covered when bloggers
were willing to let the insurers look at the blogs. See links below.
Professional
Liability Insurance:
This generally covers perils (negligence, or
other harms to customers) for professionals such as accountants, engineers, and
more recently computer systems engineers and consultants. A notorious form of
professional liability insurance would be medical malpractice insurance. It probably would cover intellectual property
perils arising out of the normal course of professional practice. This kind of
insurance is sometimes unbundled into various areas like general business liability, errors
and omissions, property loss, network security, and media perils.
This
tends to be expensive, and contrary to popular conception, is probably not
intended for the professional who has retired and wants to freelance without
benefits, or to use a spouse’s benefits. Generally a holder of such a policy
needs enough revenue and professional stature to be in a position to hire
others and operate his own firm, and generally the holder needs to be
incorporated. (We assume that the reader
is familiar with such concepts as sole proprietorship, limited
partnership, and corporation—the latter having separate reporting
requirements but providing more insulation for a person’s personal assets.)
The
best way for a situational freelancer to be covered is to become a W-2 employee
of a broker company (often a “preferred provider” for a large corporation
hiring contractors for specific projects) and negotiate a deal where he or she
does without most benefits but has liability coverage and the right to be paid
overtime (as if hourly). Sometimes such
freelancers may be required to have their own umbrella coverage, as described
above.
Generally,
salaried or hourly employees (other than officers of a company) are not
personally liable for their actions as agents of their employers, except when
it is claimed that they acted criminally or in some way that is grossly
negligent. However, in some occupations hourly and tipped or commissioned
employees do have some personal civil liability exposure for willful or grossly
negligent violations. These include bartending (serving patrons who cause
accidents driving drunk home), debt collecting, and securities. Sometimes
managers and executives are sued as individuals in employment discrimination
claims.
Some
companies provide both media risks and professional liability coverage. Insuring people who run
Some
companies offer “advertising injury” coverage as part of their professional
liability insurance. This would cover libel, right of publicity infringement
and the like in advertising; it is not clear whether this is intended to cover
media perils associated with editorial content or with fiction. The reference
is 2000 Business Law Monographs, “Property and Casualty Insurance,” IBSN 0-8205-1080-7,
LC 91-176998m publisher Matthew Bender & Company.
There
would be interesting problems if a person offered both programming or other
professional services and editorial content in his own freelance practice. An insurance company might be likely to
insist that he obtain all of his liability coverages
from one carrier. One could set up separate entities for professional services
and editorial content publishing, but some states or localities (as well as
insurers) might object to this practice.
Homeowner’s/Renter’s
insurance: special problems
In the early and mid 1980s there was some concern that many companies would stop offering insurance to renters, as they were often considered less stable and many rental properties were poorly maintained. This really did not develop, however.
In
early 2005, there have been widespread reports about property and casualty
companies canceling policies for homeowners (or renters) with specific
problems. One particularly visible problem is housing an “ineligible animal,”
often one of a certain list of breeds of dogs considered to present additional
liability risks for biting. (An infamous mauling case in a
http://origin.bankrate.com/brm/news/insur/20020531a.asp
NBC4
in
Home
based business activities (including property items) are generally not covered
by residential homeowner’s insurance. Many companies will over an incidental
business endorsement or a business package policy.
The
Independent Insurance Agents Association offers a good write-up:
http://www.iiaa.org/TC/Consumer/HomeApt/protecthomebiz.htm
Another
good write-up is at
http://www.agencyinfo.net/iv/homeowners/planning/home-business.htm
Theoretically,
some home-based businesses could offer an additional underwriting hazard to the
original residential coverage if (1) the materials kept on site presented a
fire or explosion risk (often precluded by zoning laws) or (2) the business
attracted persons to the property intent on doing harm (that is, the business
“made enemies” or attracted hecklers), a possibility that seems logical with
respect to some issues (like abortion). I do not see evidence from research so
far that this is in itself seen as a big issue by insurance company claims
experience. I can see how this could
become a secondary issue for apartment buildings or condominium complexes and
homeowners’ associations, too, but I see little evidence of it online yet.
Private database companies could try to develop services for property owners
identifying these kinds of risks among rental applicants or condo purchasers.
Nevertheless, in the United States there seem to have been few or now actual
losses or incidents so far based on this theory to justify a systematic concern
from insurers; there seem to have been some problems in Britain and Europe.
A
special note about Internet Service Providers and Web operators
There
is legal controversy over whether publishers, especially now on the web,
providing violent content should be held liable for crimes committed by
unstable persons, even when there is not direct connection to a crime that was
committed. There is also legal
controversy over whether
Secret
Reports (or Specialty Reports):
Many
companies collect and sell data about consumers with respect to insurance
claims, check writing, rental history, and even home condition. The Fair and
Accurate Transaction Act of 2003 (and amendment to the Fair Credit Reporting
Act FCRA) requires accuracy of this data and as of
There
is enough detail here for a term paper, so here are a couple of detailed web
references:
http://www.nbc4.com/consumer/4233970/detail.html
http://www.privacyrights.org/fs/fs6b-SpecReports.htm
It
would be logical for companies to provide information on assumed names,
business licenses, web domains owned, and the like. At some point in the future
employers might become more interested in such information.
General:
The
combination of political controversy, business restructuring and technological
advance has encouraged many people to become entrepreneurs, both in providing
editorial content and in general information services. But it is not yet clear
whether the lack of economic scale of many entrepreneurs (as well as lack of
supervision, when compared to creative energy and agility) will become an
insurance liability issue. A related
question might be whether entrepreneurs increase their legal exposure if they
remain employed (especially in a salaried capacity) while making a career
transition to entrepreneurialship.
The
reader should, of course, consult with an insurance, finance, or legal
professional to deal with the specifics of his or her own situation.
More Links:
http://www.dcu.org/streetwise/insurance/info/eligibility.html
http://www.insurance.wa.gov/factsheets/factsheet_detail.asp?FctShtRcdNum=13
http://www.privacyrights.org/fs/fs26-CLUE.htm
http://oci.wi.gov/pub_list/pi-207.htm
http://www.safeco.com/safeco/for_you_or_your_family/consumer_Tips/clue.asp
http://www.buzzmarketingwithblogs.com/weblog/item/liability_insurance_for_blogging/
http://www.treelaw.com/articles/sfc.12.20.95.html
(falling trees in storms and neighbors;
this issue varies from state to state and area to area; check with your local
government or homeowner’s or neighborhood association first)
There is particular concern
among consumer groups about CLUE (Comprehensive Loss Underwriting Exchange)
reports (run by Choice Point) and similar competitor reports called A-
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