Cyberspace Liability Insurance

April 13, 2006

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A small business owner may need to purchase specialized liability insurance to cover gaps in a comprehensive general liability policy.

Cyberspace liability insurance covers Internet and computer-related losses caused to other parties. These losses may be covered in a comprehensive general liability insurance policy.

However, many companies have been changing policy language in comprehensive general liability insurance polices to exclude coverage of violations of intellectual property rights, as well as for certain advertising activities. A careful reading of the comprehensive general liability insurance policy and an endorsement to the policy, if necessary, can ensure coverage for these types of liability.

Alternatively, a party that does a regular amount of business on the Internet (or perhaps a regular amount of advertising) should consider purchasing a specialized cyberspace liability insurance policy. This type of policy is relatively new and is not offered by all insurance companies.

A cyberspace liability insurance policy should cover liability for violations of intellectual property rights, invasions of privacy, libel, slander, and property damage, in the form of lost data.

In addition to liability coverage, cyberspace insurance also may have a property insurance component, and thus cover damages to computer hardware, software and data owned by the insured.

Finally, an errors & omissions (E&O) component may be available in a cyberspace insurance policy. This insures against liability incurred due to the negligent acts or errors and omissions of the insured's computer professionals who provide services to others.

A cyberspace insurance policy would be especially appropriate for a computer consulting business, an Internet service provider, a web site developer, or any company involved in e-commerce. Before a cyberspace insurance policy is purchased, however, the small business owner should examine its comprehensive general liability, E&O and property insurance policies for possible coverage overlap. To the extent the company's activities are not covered under one of these policies, a cyberspace insurance policy may be needed.