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PROTECTION AGAINST TECHNOLOGY RISKS: IS TRADITIONAL INSURANCE ADEQUATE?
William R. DennyPotter Anderson & Corroon LLP
September 20, 2006
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Agenda
What is Covered by Traditional Insurance?Additional Insured StatusSpecialty CoveragesChecklist for Insurance ClausesLawyers’ Duty to Advise Clients
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Traditional Types of Insurance
Commercial General Liability (CGL)Errors & Omissions (E&O)Comprehensive Property and CasualtyAutomobileWorkers CompensationEmployee Fidelity
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Insurance Principles
First Party or Third PartyOccurrence v. Claims Made TriggerCoverage for Indemnity and Defense
Defense applies at outsetDefense broader than indemnityDefense may be on top of policy limits
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Coverage Provided: CGL
Third Party Liability Arising Out Of:Bodily InjuryProperty DamagePersonal and Advertising Injury
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Property Damage
Property damage includes:Physical injury to tangible property, andLoss of use of tangible property that is not physically injured
Software or data generally deemed to be intangible property
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Personal and Advertising InjuryCGL Policy (ISO 2001 Form) Covers:
InjuryCaused by an “Offence”, Including
• Slander or Libel• Violation of a Person’s Right of Privacy• Infringement of Copyright, Trade Dress or Slogan in
your AdvertisementCommitted in the Course of Advertising your Goods, Products or Services.
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Three Steps to Coverage
Is there advertising activity?Is there an advertising injury offense?Is there a causal nexus between the advertising activity and the offense?
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Exclusions: Advertising InjuryKnowing Violation of Rights of AnotherMaterial Published with Knowledge of FalsityMaterial Published Prior to Policy PeriodLiability Assumed in a ContractLiability Arising out of Breach of ContractInfringement of Copyright, Patent, Trademark or Trade SecretInsureds in Media and Internet Type BusinessElectronic Chatrooms or Bulletin BoardsUnauthorized Use of Another’s Name or Product
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Other Problems of Coverage Must be the insured’s advertising activityTrademark infringement not specifically listed, but may fall within:
Misappropriation of style of doing businessInfringement of title or slogan
Coverage trigger for “Invasion of Privacy”typically dissemination, not gatheringPatent infringement typically not covered
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CGL Exclusions By EndorsementProgramming errorsContract performance disputesProfessional services liability
Computer SoftwareElectronic Data Processing
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Coverage Provided: E&O
Third party liability arising out of a negligent act, error or omission in the performance of the insured’s professional services
Examples:Failure of product to perform its functionFailure to perform services per contract
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Defenses to E&O Coverage
Non-negligent errorMeaning of “professional services”
Liability must arise out of special risks inherent in the practice of the professionInterpreting relationship as “sale of goods”would bar coverage (dominant purpose test)
Often applies only to consequential damages (i.e., loss of income due to failure)
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Defenses to E&O Coverage
Economic loss doctrineApplies to “tort” malpractice claimsRequires third party damage to person or property
Exclusion for damage to tangible propertyExpress warranty exclusion
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Common Endorsements to E&O
Intellectual property infringementInfringement of patent, copyright, trademark, trade name, trade dress, trade secret, and any other intellectual property
Computer virusUnauthorized access to electronic systemsDamage caused by computer viruses and worms
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Checklist for Insurance ClausesVendor Maintains Insurance for:
General LiabilityProfessional Errors and OmissionsIntellectual Property InfringementDefamation and PrivacyOther Traditional Insurance
Licensee Maintains Insurance for:General Liability, PropertyBusiness Interruption
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Checklist for Insurance ClausesContractual IndemnificationSpell out Types of RisksPrimary and noncontributoryName Licensee as Additional Insured
Licensee to Approve Amount and Companies30-Day Notice of Cancellation or Change
Provide Evidence of InsuranceRight to Obtain Insurance, Charge VendorProvide Replacement or Renewal Coverage
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Lawyers’ Duty to Advise Clients
Possibility of Insurance CoveragePlace Insurers on Notice of Claims
Darby & Darby v. VSI International (N.Y. Ct. App. 2000)Jordache Enterprises v. Brobeck Phleger & Harrison (Cal. Supr. 1998)