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To Tweet or Not To Tweet—Understanding the Risks in Social Media

By: Kenneth C. Hegel Jr.
Posted: July 13, 2011, from the July 2011 issue of GCI Magazine.

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Cyber liability insurance is one of the coverages that can pay to defend against claims arising out of items such as defamation of character or the infringement of intellectual property rights when the use of social media is the direct cause for said claims.

Many businesses assume that their standard general liability policy would provide coverage or protection against lawsuits of this type. Unfortunately, the majority of most general liability or commercial general liability (CGL) policies specifically exclude coverage for claims arising out of an electronic chat room or bulletin board that the insured either owns, hosts or controls. All of these instances fall under the definition of social media.

The majority of organizations might feel that they are limited to the exposures experienced by the use of social media. However, considering the fact that there have been instances where an employer was held responsible for the actions of its employees as they pertain to social media, even though the employer was not involved, further substantiates the need for such policies as cyber liability. For example, employees use their Facebook Pages on their personal time to disparage a competitor’s product. A lawsuit ensues claiming defamation of character. The company is named in the lawsuit as it is the employer of these individuals. The standard general liability policy would not provide payment for either defense costs or indemnification for claims stemming from social media.

The second exposure, which is also insurable by employment practices liability insurance (EPLI), is that of employment practices liability claims deriving from the use of social media. This area is a bit more controversial and, in my opinion, a little more volatile considering the circumstances that can bring rise to a claim. Industry statistics indicate that the probability of being sued by an employee have increased sustainably over a 10 year period. Industry statistics also indicate that almost 60% of the employee liability claims filed annually are filed against companies with less then 100 employees.

Considering all of the facts; companies need to adopt a social media policy outlining the expectations and responsibilities in an effort to protect against EPLI type claims. First, employers should insert language into their employee handbooks to address and define items such as code of conduct, harassment and confidentiality policies as they relate to the use of social media. And the second line of defense is EPLI coverage with the definition of social media being covered. This coverage will provide for both defense costs as well as settlement expenses from claims deriving from sexual harassment, wrongful termination, discrimination, etc., and many companies have now begun to adopt policy wording addressing the social media type exposures.