Insurance Issues in e-commerce Contracting

Transcription

1 Insurance Issues in e-commerce Contracting Presentation to ACC IT Privacy & ecommerce Committee February 4, 2010 Ann V. Kramer, Esq. Catherine Chaskin, Esq.

2 Who Pays?

3 Outline Indemnities v. Insurance Which Coverage Responds First? Warring Other Insurance Clauses Targeted Tenders Subrogation & Contribution Indemnity Provisions Insured Contract Terms Policies Covering e-risks

4 Indemnities v. Insurance Indemnities may stand in front of or behind insurance. Is the indemnity net of insurance? If so, whose insurance? Yours, theirs, both? Even if the obvious intention of contracting parties is that their insurance is primary, many courts ignore this, looking solely to other insurance clauses in the relevant insurance policies.

5 Other Insurance Primary Pro Rata Other Insurance If other valid and collectible insurance is available to the insured... our obligations are limited as follows: a. Primary Insurance This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below... c. Method of Sharing If all of the other insurance permits contribution by equal shares, we will follow this method also.... If any of the other insurance does not permit contribution by equal shares, we will contribute by limits....

6 Other Insurance Excess If other collectible insurance with any other insurer is available to the insured covering a loss also covered hereunder (except insurance purchased in excess of the limit of liability hereunder), the insurance hereunder shall be in excess of, and not contribute with, such other insurance.

7 Other Insurance Excess (Additional Insured) This insurance is excess over... (2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment or endorsement.

8 Other Insurance Excess (Vendors) This [vendor s coverage] will be excess over any valid and collectible insurance available to the insured as an additional insured under a policy issued to a manufacturer or distributor for products manufactured, sold, handled or distributed.

9 Other Insurance Escape (Super Excess) Other Insurance. This insurance is excess over any other valid and collectible insurance whether such other insurance is stated to be primary, contributing, excess, contingent or otherwise. This provision does not apply to a policy bought specifically to apply in excess of this insurance.

10 Indemnity Clause Trumps Courts may deny equitable contribution/ subrogation where it would contravene the intent of the parties as set forth in valid indemnity provisions of their contracts. American Indem. Llloyd s v. Travelers, 335 F.3d 429 (5 th Cir. 2003) Federal Ins. v. Gulf Ins., 2005 Mo. App. LEXIS 364 (Mar. 8, 2005)

11 Indemnity Clause Trumps (CA) As we see it, the question is one of contract interpretation. If the conduct or claim falls within the [terms of the indemnity agreement], and the intent was to make the [indemnitor s] insurance primary, then the agreement should be enforced and contribution denied. If either of these prongs is missing, the general policy supporting equitable contribution trumps. Edmondson Prop. Mgmt. v. Kwock, 67 Cal. Rptr. 3d 243, (Cal. App. 2007)

12 Insurance Policy Governs (NY) The scope of the insurance coverage actually obtained by the [indemnitor] must be determined by the terms of the policies, not by the terms of the [contract with the third party indemnitee]. USF&G v. CNA, 618 NYS2d 465, 467 (3d Dept. 1994)

13 Targeted Tenders (IL) The additional insured (AI) tenders the claim for defense and indemnification to the other party s insurance company as an additional insured and Notifies its own insurance company but does not tender the claim for defense or indemnification.

14 Targeted Tenders (IL) Inform the insurer that claim is tendered under additional insured coverage Make clear that AI has made an intentional election between insurers and why the election is important to protect its interests AI believes its own insurance is excess (hopefully endorsed properly) Point out why additional insurance covers the claim State that AI is looking to insurer for all coverage and does not want its own insurance tapped Tender immediately before incurring costs Malecki & Ligeros, The Additional Insured Book, 5 th ed., p. 128 (2004)

15 Fixing Other Insurance Getting access to your indemnitor s insurance policy is often very difficult. Indemnitees can protect themselves by endorsement on their own policies: This insurance is excess over any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

16 Fixing Other Insurance Specific wording is designed for different business environments: This [vendor s coverage] will be excess over any valid and collectible insurance available to the insured as an additional insured under a policy issued to a manufacturer or distributor for products manufactured, sold, handled or distributed.

17 Deductibles & Self-Insurance If one policy is a fronting policy, outcome unclear In some states, self insurance has been held not to be insurance and, therefore, it is not other insurance Who pays deductibles? Shift the responsibility by contract?

18 Sole Negligence Issue arises in policies and contracts Certain policies exclude additional insured coverage for the additional insured s sole fault Even if excluded under AI cover, indemnitor may still have coverage under contractual liability provision for insured contracts Some states will not enforce an indemnity for the other party s sole negligence

19 Subrogation Disallowing Subrogation Among Insureds: Anti-Subrogation Rule Many states forbid subrogation claims where both parties have the same insurer Pennsylvania General v. Austin Powder, 502 NE2d 982 (NY 1986) Alternative is an explicit policy provision waiving subrogation rights

20 Reallocation Among Insureds According to Fault The Impact of Anti-Subrogation Doctrine The anti-subrogation rule has been held inapplicable to a claim for contribution or indemnification from a coinsured for amounts in excess of applicable policy limits. Impact of anti-subrogation rule where additional insured loses its status based upon a finding of fault or otherwise in underlying action.

21 Policies Potentially Responsive to e-risks Comprehensive General Liability Bodily Injury and Property Damage Personal Injury and Advertising Injury Errors & Omissions/Directors & Officers Covered Wrongful Acts Crime/Property Require loss or destruction of property New Specialty Policies

22 We Read Policies So You Don t Have To

23 When You Ask a Business Partner to Insure You, What Risks Really Transfer to That Partner s Insurer? Copyright Infringement? Trademark Infringement? Trade Dress Infringement? Antitrust Violations? Unfair Competition? Patent Infringement? Privacy Violations?

24 Typical General Liability Coverage for Advertising Injury Advertising injury means injury arising out of one or more of the following offenses: a. Oral or written publication of material that slanders or libels a person or organization or disparages a person s or organization s goods, products or services; b. Oral or written publication of material that violates a person s right of privacy; c. Misappropriation of advertising ideas or style of doing business; or d. Infringement of copyright, title or slogan.

25 Typical General Liability Coverage for Personal Injury May Be Broader Personal injury means injury, other than bodily injury, arising out of one or more of the following offenses: * * * d. Oral or written publication of material that slanders or libels a person or organization or disparages a person s or organization s goods, products or services; or e. Oral or written publication of material that violates a person s right of privacy.

26 Uh Oh. New Exclusions Target Data Breach Issues This is an example of an endorsement to a GL policy which excludes liability arising from FCPA, DPPA and related statutes & regulations

27 Other Sources of Coverage: The Wave of the Future? Specialty Policies are Entering this Arena, Providing (very narrow) Coverage for (example): Media Liability (Copyright, trademark, privacy) and Media E&O Security and Privacy Liability ( failure of security or privacy peril Phishing Endorsement ) Identity Theft (Crisis management only)

28 Downsides to this New Coverage Another Policy? More premium? Slim Claim Track Record Policies are Baroque Application Process can be Rigorous

29 Other Options? Risk Mitigation through Technology. Downside: costly to do it right. Consider: going through privacy policy application process in order to educate yourself (and your board, CEO, etc.) on best practices that your company is not practicing.

30 Thank you! Catherine Chaskin, Esq. ReedSmith LLP 10 S. Wacker Chicago, IL O: C: Ann V. Kramer, Esq. ReedSmith LLP 599 Lexington Avenue New York, NY O: C: