Some Notes about Insurance Issue

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 Vermont, and eventually treat them as married.

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 ISP’s may be tricky, as the insurance company will want to know whether the ISP operator contributes editorial content, or edits or monitors the content of others. There have been proposals and legal cases recently claiming that ISP’s should be liable for harm done by extremely violent sites or books, and lawyers tend to say that an ISP, to protect itself, should not police or contribute to editorial content.

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 San Francisco apartment hallway may have contributed to this.) Some companies may continue coverage but simply not cover this kind of liability. Here is a good reference by Jenny McCune at Bankrate:

http://origin.bankrate.com/brm/news/insur/20020531a.asp

NBC4 in Washington has covered this problem, also (. Other reasons for property insurance declinations include (1) failure to keep the property in good repair (2) poor credit rating of the applicant. It is not clear how insurance companies learn about problems on the property with coverage already in force.

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 ISP’s can be held liable for the unlawful actions of their customers—are ISP’s “publishers” or are the “utilities”? There is also legal controversy over whether ISP’s and web operators that allow visitors to post content should “monitor” their customers or visitors, or whether such monitoring would increase or decrease potential liability. The liability insurance industry generally discourages such monitoring right now, but this area is in transition.

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 Dec 1 2004, consumers have had the legal right to one free report per year from any company that provides such data.

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-PLUS, which show the claims history of a property or vehicle. Telephone calls to agents or insurers not resulting in money claims are sometimes reported and have sometimes caused denial or property/casualty insurance or bump-up in rates. Some states are starting to make this practice, which certainly seems a bit unethical, illegal. The Fair Credit Reporting Act does give consumers redress for correcting inaccurate information on these databases.

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