Webs for the Unwary: The Perils of Internet Marketing

The World Wide Web—touted as the greatest communication development of all time—has also become the world’s biggest catalog. Along with the use of the Internet for marketing, have come new torts, and a new body of law. As businesses, large and small, find larger audiences for their marketing, they also have competitors actively defending their marketing ideas and intellectual property rights. As insurance companies move into the new millennium, and begin advertising and marketing policies over the Internet, they will begin to face the same liability exposures, and coverage issues, that have confronted other policyholders and plagued insurers evaluating claims.

Web sites can give rise to myriad liability exposures. The name of a site may infringe upon a trademark, or a previously registered domain name. Framing— allowing access to other Web sites while maintaining the borders of one’s own site, or “deep-linking”—allowing access to another Web site at a point other than the home page, can bring claims of unfair competition. Unauthorized use of a face, or voice, may constitute an invasion of privacy. Use of another’s original material, be it text, logo, or photographic reproduction, may infringe upon a copyright. Even the coding, invisible to most Web site visitors, is rife with exposure. An entire new body of case law has developed over meta-tag infringement—using another’s trademarked name in the search code, so that search mechanisms will find both sites. For instance, ABC company might list “XYZ” in its meta-tags, so that users searching for XYZ also find the site of ABC —XYZ’s competitor.

These “cybertort” exposures are in addition to the regulatory issues that insurers must face, to market policies in multiple states, over the World Wide Web.

If, or when, claims arise, insurers may find themselves reviewing their own liability policies, to determine what coverage is provided. Typically, commercial general liability policies will not provide coverage for intentional torts, or intellectual property claims, under the coverage for bodily injury or property damage liability. As the torts arising from Web sites are frequently intentional in nature, and the loss is typically economic, neither the “occurrence,” nor the “property damage” requirements are likely to be met.

Of course, most liability policies also provide coverage for personal and advertising injury liability. While the language of the ISO form has recently changed, the changes are relatively minor. Advertising injury offenses require a causal “nexus” to advertising activity: the offense must occur in the advertising, and not merely be exposed by it. In the case of Web sites, this nexus is easy to satisfy, as virtually anything on the Internet can be construed as advertising. Advertising injury coverage also varies, between ISO forms and manuscript policies, but is usually limited to enumerated offenses. But, the offenses are frequently broad enough to encompass at least some Internet torts. Copyright infringement, for instance, is typically covered outright—assuming the advertising nexus is satisfied. Infringement of trade dress, and other infringement claims unique to Web sites, including claims related to framing or deep-linking, may fall within coverage for misappropriation of another’s advertising ideas or style of doing business. Under older policies, many Web-based offenses may be construed as “unfair competition,” an offense that is likely broad enough to encompass most claims related to inappropriate use of a Web site. In addition, misuse of another’s likeness may constitute an invasion of privacy, included among both the personal and advertising injury offenses.

Anti-cybersquatting laws have created some protection for domain names— which may or may not be registered trademarks—and a framework to resolve disputes. Still, the current propagation of new top level domains, each of which requires independent registration, will also likely lead to a proliferation of claims for infringement of domain names.

In addition to the coverage under the advertising injury portion of the general liability policy, a number of insurers have begun offering specialty products, designed for Web site and other Internet exposures. While these policies are unlikely to expand to regulatory violations, they would subsume an even broader range of Internet torts. For instance, the programming that allows a Web site
to function—the check-out procedure, for instance, can be a patented process and has led to litigation. While patent infringement is not covered under most standard CGL forms, it may be covered under specialty forms.

With increased use of the World Wide Web for their own marketing, insurers may develop a new appreciation for the exposures facing other insureds, and the perils that can accompany the convenience of Internet marketing.

Bradley is a partner in the Dallas office of Thompson, Coe, Cousins & Irons, L.L.P. She is a member of the Insurance Litigation and Coverage Section and leads the firm’s coverage practice. She has represented agents in disputes with policyholders and insurers and routinely represents insurers in evaluating and litigating coverage issues under general and professional liability policies, commercial auto and trucking policies, commercial property policies and homeowners policies.

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