Law of the Internet
Brockett, Patrick L., Golden, Linda L., Journal of Risk and Insurance
Law of the Internet, by George B. Delta and Jeffrey H. Matsuura, 1999, Gaithersburg, N. Y.: Aspen Law & Business Publishers.
Dr. Martin Luther King once said, "All progress is precarious, and the solution of one problem brings us face to face with another problem." Nothing could be truer about the evolving progression of electronic technology from the perspective of the risk manager-solving one problem and creating another. As the Internet, with cybermarketing and telecommunication technology in particular, inexorably mold the business (and personal) environment, the risk manager must acquaint himself or herself with identification and management of electronic risk. New risks and new technology are transforming the scope and magnitude of financial exposures addressed by businesses. Additionally, as businesses become more dependent on electronic media for communication and revenue (experts predict that Internet sales will account for 40 percent of U.S. trade by 2006, NAC Reinsurance Liability Bulletin, Summer 2000), the potential financial consequences of service interruptions or vicarious liability become more profound. It has been estimated that a computer virus or service attack like the Medusa or Love Bug virus (which in May 2000 cost businesses more than $10 billion, according to XL Re Liability Bulletin, January 2001) could result in hundreds of billions of dollars in losses as the offending programs (viruses) become more sophisticated and complex. These losses worldwide could dwarf the losses associated with natural phenomenons such as hurricanes and earthquakes. Although this loss potential should be enough to make even the most complacent risk manager or insurer sit up and take notice, survey evidence shows that many risk managers are not sufficiently aware of the risks and how to identify, control, or handle them. New risks and new orders of magnitude for damages from electronic technology are not solely the worries of the new "electronic risk" niche insurers. They can also be of substantial concern to "ordinary" property and liability insurers that are now finding court rulings providing coverage for electronic hazards under old "standard" policies such as the Commercial General Liability (CGL) policy (c.f., NAC Reinsurance Liability Bulletin, Summer 2000). Although insurers might assert that "physical damage" coverage does not extend to cover a perfectly intact disk (or hard disk) that has had its information destroyed by a magnetic rearrangement of the media, some courts are finding exactly such coverage. Indeed, the court in American Guarantee Insurance Co. v Ingram Micro, Inc. (2000 US Dist LEXIS 7299) found such coverage in the CGL citing the omnipresence of the electronic media in the business environment as a basis for the conclusion that the company was physically damaged by loss of data (cf., XL Re Liability Bulletin, January 2001). The issue of whether or not loss of data is a "tangible property" loss became a particular concern during the Y2K controversy, but it is still boiling beneath the surface for insurers. Similarly, older policies have been tapped for coverage involving harassment using e-mail, defamation cases (and copyright cases) involving Web pages, deceptive trade practice cases involving the use of "hyperlink tags" on Web pages, advertising liability insurance coverages, and many other issues.
Much of the risk in electronic communication and commerce is of a legal nature, and the astute risk manager or insurer should be aware of this rapidly evolving area of Internet law because both the risks and the means to finance these risks are often insurance related. …