Porsche AG issued a recall today for 1232 of its 2012 911 Carrera S Coupes, stating that a fuel line could become disconnected due to its proximity to a coolant line.  The result could be fuel leakage, causing the engine to stop or possibly to catch fire.  So why is this important?  Companies issue recalls every day – why should you (or anybody else) care about this one?    

The plaintiffs filed suit against their insurer, Auto-Owners, for breach of contract and bad faith, claiming that Auto-Owners was liable for the total loss of their vacation home that was uninhabitable and unsaleable as a result of the accumulation of bat guano between the home’s siding and walls.  The Supreme Court of Wisconsin was asked to resolve the question whether the pollution exclusion in the Auto Owners policy defeated the claim in Joel Hirschhorn and Evelyn F. Hirschhorn v. Auto-Owners Insurance Company, 2012 WI 20 (Wis. 03/06/2012).

Although unexpectedly large jury verdicts have prompted disputes between excess and primary insurers for years, the phenomenon of excess carriers suing defense counsel hired by the primary insurer relatively new.  The issue presented in such cases is whether, in the absence of a direct attorney/client relationship, the excess carrier has any right to sue counsel or, in the alternative, pursue a claim for equitable subrogation based upon counsel's client relationship with the insured.

For the most part, courts have declined to acknowledge a direct client relationship between the excess insurer and defense counsel.  As a result, some states have ruled that excess counsel has no right of action at all.  Indeed, in many states, courts have refused to acknowledge a client relationship between defense counsel and the primary insurer that hires counsel to defend its insured.  Whether a lawyer has an attorney-client relationship with an insurer that has hired it to represent a policyholder has been considered in several cases where insurers have sought to sue defense counsel for malpractice.  In several of these cases, courts have ruled that  the insurer is not a client of defense counsel. See First American Carriers v. Kroger Co., 787 S.W.2d 669, 671 (Ark. 1990)("when a liability insurer retains a lawyer to defend an insured, the insured is the lawyer's client");  Atlanta Int. Ins. Co. v. Bell, 475 N.W.2d 294, 297 (Mich. 1991)(declaring that "the relationship between the insurer and the retained defense counsel [is] less than a client-attorney relationship");  Continental Cas. v. Pullman, Comley, 929 F.2d 103, 108 (2d Cir. 1991)("[i]t is clear beyond cavil that in the insurance context the attorney owes his allegiance, not to the insurance company that retained him but to the insured defendant"); Point Pleasant Canoe Rental v. Tinicum Tp., 110 F.R.D. 166, 170 (E.D. Pa. 1986) ("[w]hen a liability insurer retains a lawyer to defend an insured, the insured is considered the lawyer's client") and In Re Petition of Youngblood, 895 S.W.2d 322, 328 (Tenn. 1995)(counsel's sole client is insured).

A few jurisdictions have also acknowledged that, even if the excess insurer is not a client, it is at least a third-party beneficiary of these legal services and thus entitled to bring suit.  Thus, in Paradigm Insurance Company v. The Langerman Law Offices, 24 P.2d 593 (Ariz.  2001), the Arizona Supreme Court found that although an insurer's retention of defense counsel does not necessarily give rise to an inherent conflict of interest in every case, neither does an insurer always enjoy "client" status. The Supreme Court agreed with defense counsel that "the potential for conflict between insurer and insured exists in every case; but we note the interests of insurer and insured frequently coincide."  Accordingly, the court found that it was possible, absent a conflict of interest, for defense counsel to represent both insurer and insured "but in the unique situation in which the lawyer actually represents two clients, he must give primary allegiance to one (the insured) to whom the other (the insurer) owes a duty of providing not only protection, but of doing so fairly and in good faith."  In any event, even if the insurer is not the lawyer's client but merely an agent of the insured, it is entitled to the same protection as the insured enjoys with respect to the confidentiality of client communications.  The court concluded that, "when an insurer assigns an attorney to represent an insured, the lawyer has a duty to the insurer arising from the understanding that the lawyer's services are ordinarily intended to benefit both insurer and insured when their interests coincide.  This duty exists even if the insurer is a non-client."

Others have likewise found that no client relationship exists but have permitted such claims to go forward on a theory of equitable subrogation.  However, a right to pursue claims for equitable subrogation may be of little value to an insurer in cases where the insured itself is already pursuing a malpractice action of its own, however.  In Pine Island Farmers Cooperative v. Erstad & Riemer, P.A., 649 N.W.2d 444 (Minn. 2002), for instance, the Minnesota Supreme Court refused to find that defense counsel had a client relationship with the insurer and, furthermore, refused to permit the insurer to pursue an action for equitable subrogation to pursue rights accrued from the insured as, in this case, the insured itself had already sued defense counsel for malpractice.  

In a recent Mississippi case, however, the state Court of Appeals has suggested the possibility that an actual attorney/client relationship may be established as the result of contacts between defense counsel and the excess carrier.  In Great American Excess & Surplus Ins. Co. v. Quintairos, Prieto, Wood & Boyer, No. 2009-CA-01063, a nursing home in Mississippi was sued for failing to provide proper care to a resident.  The primary insurer (Royal) engaged local counsel to defend the case.  A year later, Royal hired the law firm of Quintairos, Prieto, Wood & Boyer to take over the defense.  The Quintairos firm is a large national law firm with offices throughout the South and Southwest but is not itself a Mississippi law firm.  This fact was pointed out to Royal by the nursing home in expressing concern that none of Quintairos' partners or trial attorneys were licensed to practice law in Mississippi.  Although Royal insisted on continuing to use the Quintairos law firm despite its insured's concerns, these concerns were magnified when, a few weeks later, the trial court struck down counsel's belated designation of a physician as an expert witness.  Thereafter, the law firm issued an updated evaluation of the case.  Whereas prior reports had given a settlement value of $500,000 or less, the March 19, 2004 report concluded that the case had a value of $3 million to $4 million, the first indication that Great American's excess policy might be implicated.  Thereafter, Royal tendered its limits and Great American ultimately settled the lawsuit for an undisclosed amount.

In the ensuing malpractice action against Quintairos, Great American sought recovery on theories of equitable subrogation and negligence, including claims for negligent misrepresentation based upon the trial report submitted to Great American by the law firm.  In 2009, the trial court granted the defendants' motion to dismiss, holding that Great American lacked standing to file suit because it had no attorney/client relationship with the law firm. 

In 2011, the Court of Appeal affirmed the trial court's dismissal of Great American's negligence claims but declared that it should be permitted to go forward on a theory of equitable subrogation.  In Great American Excess & Surplus Ins. Co. v. Quintairos, Prieto, Wood & Boyer, 2009-CA-01603 (Miss. App. January 18, 2011), the Mississippi Court of Appeals has ruled that an excess insurer may sue defense counsel hired by the primary insurer for any alleged negligence that resulted in the underlying nursing home suits settling for sums greater than the primary limits of coverage.  The court held that Great American could not sue for malpractice, since it lacked an attorney-client relationship with the firm.  The court declined to allow a direct claim based upon the excess insurer's reliance on alleged misrepresentations with respect to case valuation.  Nevertheless, as have other courts, the Court of Appeals held that even in the absence of an attorney-client relationship, an insurer may bring a claim for equitable subrogation. 

It is logical that an excess-insurance carrier should be allowed to pursue a claim in the insured's place. Shady Lawn had no incentive to pursue a legal-malpractice claim against Quintairos even if it believed Quintairos to be negligent because it had insurance in place to pay the settlement. Also, Royal had no incentive to pursue a claim if it believed the settlement value to be at or near the policy limits of the primary coverage regardless of the alleged malpractice. "The only winner produced by an analysis precluding liability would be the malpracticing attorney." Atlanta Intern. Ins. Co. v. Bell, 475 N.W.2d 294, 298 (Mich. 1991). ¶18. We recognize that a possibility exists that this may result in frivolous claims by excess-insurance carriers; but, for this Court to prohibit legitimate claims would leave the attorney who allegedly committed malpractice free from consequences if the primary insurer declined to pursue a claim. Also, we find that a conflict is not created by allowing Great American to seek equitable subrogation against Quintairos for legal malpractice. Great American and Shady Lawn have the same interest in this litigation -- Shady Lawn's competent representation. Further, Quintairos has already shared attorney-client communications and work product with Great American in the underlying cases. 

Last month, however, the full Court of Appeals withdrew the 2011 panel opinion and substituted a new decision declaring that Great American could pursue claims for negligence and equitable subrogation against the Quintairos firm.  Although the court "denied" Great American's motion for rehearing, its new decision effectively grants the relief that the excess insurer was seeking.  Whereas the Court's earlier opinion had only allowed the case to go forward on a theory of equitable subrogation, the court has now ruled 7-2 in Great American Excess & Surplus Ins. Co. v. Quintairos, Prieto, Wood & Boyer, 212 WL 266858 (Miss. App. January 31, 2012) that Great American had direct rights of action against the firm based upon misrepresentations that it made in reports from Quintairos to Great American.  Even though Great American had not hired the Quintairos firm, the court ruled that Great American was not a "stranger" to the attorney/client relationship.  The court found a relationship was implicit in the communications that defense counsel had been providing to the excess carrier, belying counsel's claims that permitting such a cause of action would interfere with the privilege attached to communications between defense counsel and its client.  

Under the circumstances, the Mississippi court ruled that any misrepresentations in the report that Quintairos had provided to Great American  would support a claim for malpractice and that the trial court had therefore erred in granting counsel's motion to dismiss.  Further, as before, the court recognized a right on the part of an umbrella carrier to bring a claim for equitable subrogation,

Writing in dissent, Justices Carleton and Russell argued that Great American lacked standing to raise these claims and that, "Creating a cause of action for legal malpractice wherein no privity of contract, nor attorney-client relationship exists, jeopardizes the sanctity of the attorney-client relationship."

It remains to be seen whether this Mississippi opinion will provide a template for other courts to imply a client relationship between excess insurers and defense counsel in cases where there were privileged communications between the parties and other trappings of an attorney-client relationship.  What does seem apparent is that courts are becoming less concerned about the formal relationships and are increasingly looking to the actual inter-relationships among defense counsel, primary insurers and excess carriers in determining whether the purposes and indiciae underlying the attorney-client relationship should extend to excess insurers.  It is less clear, however, that Quintairos would support the finding of a client relationship between an excess insurer and defense counsel where, as is more commonly the case, the excess carrier merely receives information from the primary insurer and has little or no direct dealings with defense counsel.

It is not surprising that plaintiffs claiming to be injured in auto accidents are often evasive about their prior medical history and treaters. In an article published by the American Medical Association, “Examinee-Reported History Is Not a Credible Basis for Clinic,” Robert Barth, Ph.D., cites numerous studies confirming that claimants tend to misrepresent their pre-claim functioning as having been “superhuman,” and distort their reported history in a fashion that potentially inflates the financial compensation for their claims.

This forces defense attorneys to utilize alternative methods in their ongoing attempt to locate the pre-accident smoking gun:

• Jail medical records: In a recent Michigan case, a plaintiff admitted he previously suffered a closed head injury from a prior auto accident. However, he claimed that he never had seizures before a subsequent auto/pedestrian incident, and was not taking Depakote for seizures. There was a gap in his post-MVA treatment, and it was discovered he was incarcerated. Indeed, the jail medical records confirmed a year before the accident that he suffered a seizure and was taking Depakote, an anti-seizure medication, for his condition.
  
• MasterTrace: This service bears fruit, particularly when a plaintiff has no prior history of health insurance, and has lived in other states. MasterTrace performs an extensive canvass profile of hospitals and pharmacies within a certain designated radius and matches up with the plaintiff’s background information to come up with potential “hits.” However, this service can be expensive, depending on the nature of the search.
• Prescription Drug Monitoring Programs (PDMP): A PDMP is an electronic database that collects designated data on substances dispensed to a patient in the state. Thirty-seven states currently have PDMPs. On September 1, 2011, pharmacists in Florida began submitting data to the recently implemented Florida Prescription Drug Monitoring Program. Across the country, access to this information is restricted to physicians and law enforcement personnel. While defense attorneys are not able to subpoena the information, if you are lucky, the plaintiff’s treating physician may request a PDMP if he or she suspects drug abuse or doctor shopping. Generally, the physician will not supply a copy of the PDMP in a standard subpoena unless requested, or if you happen to come across it during a review of the actual file in a doctor’s deposition. If you do land such a report, it may provide an abundance of information, including prior treaters and pharmacies, and demonstrate evidence of pre-accident drug abuse.
  
• Veteran Administration Records: Do not skim over the fact that a plaintiff served in the military 40 years ago. He or she may still be treating and receiving prescriptions from your local VA hospital. Further, if a plaintiff is receiving a pension from the VA, he or she periodically has to undergo a disability determination, and fill out paperwork. It is always compelling to see what the plaintiff tells the VA, as compared to Social Security Disability, workers’ compensation, and plaintiff's own treaters during the identical time frame.
• Health Insurance Cards: Somewhere in every treater’s medical record, hospital’s intake sheet, or hidden deep within a prior auto accident claim file is a copy of plaintiff’s health insurance card (if he or she has one). If located, these health insurance records may provide a precise history of all prior hospital, doctor and pharmacy visits.

A plaintiff is not going to hand you his or her pre-accident history on a platter, so expect to do some extra digging. With enough persistence, you may ultimately discover a wealth of information that could undermine the plaintiff’s credibility and case.

Robert Abramson is an associate in the law firm of Kopka, Pinkus, Dolin & Eads in Farmington Hills, MI. He specializes in first-party, third-party and uninsured motorist claims in Michigan. Mr. Abramson is a member of DRI's Young Lawyers and Insurance Law Committees.

Medicare expands resolution options to include a new Medicare repayment program for small settlements or judgments. This program will be available starting in February 2012 and applies to cases settling for $25,000 or less.  Under this program, Medicare will provide final conditional payment amounts before settlement under certain circumstances.  This program has the potential to revolutionize the settlement process for many Medicare beneficiaries, their counsel, and settling parties.  The foundation of that process is to start the verification process early.  

Recently, the Centers for Medicare and Medicaid Services (“Medicare”) released guidance (the “Alert”) relevant to conditional payment reimbursement under the Medicare Secondary Payer (“MSP”) Act (42 U.S.C. §1395y(b)(2)).  This guidance permits certain Medicare beneficiaries to receive a final conditional payment amount from Medicare prior to date of settlement.  Historically, Medicare’s conditional payment reimbursement process has not allowed a Medicare beneficiary or settling parties from obtaining such information from Medicare or its recovery contractors.
 
Under this small settlement option, for a Medicare beneficiary to obtain a final conditional payment amount prior to settlement, the fact pattern must meet all of the following criteria:

1. The liability insurance (including self-insurance) settlement will be for a physical trauma based injury (the settlement does not relate to ingestion, exposure, or medical implant);
2. The total liability settlement, judgment, award, or other payment will be $25,000 or less;
3. The Date of Incident occurred at least six months before the beneficiary or representative submits the proposed conditional payment amount to Medicare; and
4. The beneficiary demonstrates that treatment has been completed and no further treatment is expected either through a written physician attestation or by certifying in writing that no medical treatment related to the case has occurred for at least 90 days prior to submitting the proposed conditional payment amount to Medicare.

If the case meets all of these qualifying criteria, then Medicare, through its recovery contractor, the Medicare Secondary Payer Recovery Contractor (“MSPRC”), will provide a final conditional payment amount prior to settlement.  This final conditional payment amount provided by the MSPRC will only be valid if the Medicare beneficiary settles a claim within sixty (60) days of the date of Medicare’s response.  According to MSPRC, this option will be available to Medicare beneficiaries starting in February 2012, and will effectively allow Medicare’s related claims to be identified pre-settlement.  While the process has not been fully defined, it is likely that once settlement is finalized, the process of requesting a final demand amount from Medicare (by providing gross settlement amount, fees, costs and expenses) will remain the same, regardless of whether this small settlement resolution program has been utilized.

Starting the Medicare repayment process early provides the best opportunity to comply with all Medicare Secondary Payer obligations while expediting the case.  Medicare’s 2012 small settlement resolution program reinforces the need to START EARLY!  To take advantage of this program in a $25,000 or less case means needing to know if an individual is Medicare enrolled, and if so, how much in medical expenses has Medicare paid conditionally.  Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness in settlement proceedings.  Such a formalized settlement process should include an analysis of the applicability of this small settlement resolution program.  Thus, screening a case/claim up front to verify entitlement, establishing a tort recovery record with Medicare early in the process and obtaining the first conditional payment letter from Medicare (all as part of a formalized settlement process) and resolution path is the proper path to take advantage of this small settlement resolution program.  Although Medicare currently does not intend to include exposure, ingestion or implantation cases in this program, the Alert identifies that this will be a work in progress.  As a result, if this program creates the intended results that benefit the settling parties, taxpayers and the Medicare program, an extension of this program in 2013 may not be out of the question. 

Medicare intends to issue additional guidance on how to participate in this program in January 2012.  The DRI MSP Task Force will provide further program details once they have been released.  Until then, we continue to stress the importance of verifying Medicare enrollment as early in the settlement process as possible, as that information will better define the scope of the settlement continuum; from reimbursement to reporting to potential future cost of care issues.

CMS Announcements on Fixed Percentage Option for Settlements of $5,000 or less, $300 Threshold Limit for Reimbursement, and Identification of Contractor for Medicare Secondary Payer Recovery

Insurance fraud has been estimated to take between $80 billion and $300 billion a year from the insurance industry in the United States. Every state has a statute making insurance fraud a crime including the federal crimes of mail and wire fraud and the Racketeer Influenced and Corrupt Organization Act (RICO). RICO can also be a civil action which allows for treble damages or punitive damages.

Some insurer victims of insurance fraud have become proactive. In State Farm Mutual Automobile Insurance Company; State Farm Fire and v. Arnold Lincow, D.O.; Richard Mintz, D.O.; Steven Hirsh; 7622 Medical, No. 10-3087 (3d Cir. 09/16/2011) the Third Circuit dealt with an appeal from State Farm’s successful trial against some doctors and clinics who defrauded it and those it insured.

Facts

After a four-week jury trial plaintiff State Farm successfully convinced the jury that defendants, a number of health care providers (“Defendants”), engaged in various schemes to defraud State Farm by billing it for medical services that were either not provided or provided unnecessarily, and were illegal under RICO, fraud statutes, and common law fraud. Following trial, Defendants filed motions for judgment as a matter of law or, in the alternative, for a new trial or, in the alternative, to alter or amend the judgment. The District Court denied Defendants’ motions in their entirety.

Plaintiff alleged that Defendants were members of a conspiracy that sharply inflated the costs of medical care for car accident victims by prescribing tests and treatments, as well as prescriptions and medical equipment – whether medically necessary or not – and then routinely billed State Farm for additional treatments that were never provided. At trial, State Farm’s proof of Defendants’ fraud consisted of State Farm’s claim files and testimony of patients, physicians at Defendants’ medical facilities, Defendant physicians, and experts.
After a four-week trial, the jury awarded Plaintiff over $4 million against all Defendants jointly and severally, and individual Defendants were found liable for punitive damages totaling $11.4 million

Analysis

The Third Circuit’s reviews a district court’s order granting or denying a motion for a new trial for abuse of discretion unless the court’s denial of the motion is based on the application of a legal precept, in which case the review is plenary. A new trial may be granted on the basis that a verdict was against the weight of the evidence only if a miscarriage of justice would occur if the verdict were to stand.

State Farm noted that RICO is distinct because the members of the association-in-fact enterprise include all the defendants, there is a complete identity between the enterprise and the defendants and, therefore, no distinctiveness among the defendants.  As the District Court noted and State Farm urged, the intracorporate conspiracy doctrine is not universally accepted, and it is questionable whether the Defendant’s version is completely accurate.

The defendants argued that State Farm failed to prove: (1) the elements of an association-in-fact enterprise; (2) that defendant Mintz conspired with the other Defendants to defraud, as § 1962(d) requires; (3) that Mintz’s actions proximately caused State Farm’s injuries; (4) that Mintz’s conduct fulfilled the elements of common law fraud; and (5) that Mintz’s conduct fulfilled the elements of statutory fraud under Pennsylvania law. The Third Circuit rejected all of Mintz’s claims to the contrary and held that the weight of the evidence supports the jury’s finding against Mintz and the other defendants. Therefore, the Third Circuit concluded that to let the verdict stand would not result in a miscarriage of justice.

The Third Circuit agreed with State Farm’s assertion that a violation of the Insurance Fraud statute is a civil tort and that, as the jury found and the District Court upheld, the Defendants together contributed to State Farm’s injuries and are thus jointly and severally liable. Moreover, as the District Court correctly noted, there is no requirement for district courts to instruct juries to award damages against each defendant separately and individually. Because State Farm elected to receive treble damages the Third Circuit had no reason to address the contention that the punitive damages award should be reduced.

Lesson

Insurers who are the victims of fraud cannot rely on police agencies to investigate and prosecute perpetrators of insurance fraud. Prosecutions are few and far between. As readers of Zalma’s Insurance Fraud Letter, available FREE at http://www.zalma.com/ZIFL-CURRENT.htm, know prosecutions are increasing but are still anemic and those who are prosecuted and convicted usually receive minor punishments. By being proactive insurers can recover from the fraud perpetrators, like the doctors involved in this case, the insurer can recover what it lost, a bonus of three times the compensatory damages, and actually deter insurance fraud by hitting the perpetrators where it hurts them most, in their wallet.

It is time that insurers emulate the actions of State Farm and the few other insurers who are using civil suits to defeat insurance fraud by taking the profit out of the crime.

No, this does not a commentary on a lawsuit regarding a nutritional health claim against Red Bull.  Instead it is about a lawsuit filed by D.C. United striker Charlie Davies against a D.C. bar, the Shadow Room, and Red Bull alleging that the two are liable under D.C.'s dram shop law for over serving a patron who went on to severely injure Davies and kill a passenger in his vehicle.  The suit against Das Enterprises (which owns the bar) and Red Bull North America is pending in D.C. Superior Court.  The driver at issue in the case, Maria Espinoza, was convicted of involuntary manslaughter.  The suit alleges that Red Bull hosted an event at the D.C. bar at which the bar continued to serve Espinoza despite her visible intoxication.  Davies claims that in addition to his physical and medical damages, Red Bull and the bar should be liable for damages due to his loss of the opportunity to play in the 2010 World Cup games in South Africa.

Davies' suit against Red Bull faces some problems.  Proving social host liability, as opposed to holding a licensed establishment liable, can be tricky and varies by state.  D.C. explicitly does not recognize social host liability on its own, although the case law is murky.  In addition to the difficulty in tying the claims to Red Bull, Davies claimed damages related to his playing at the World Cup are speculative at best (my sixteen-year old son's opinion of his ability to score goals notwithstanding).  Finally, Davies faces some comparative fault himself given he was breaking team curfew at the time of the accident. 

This is a sad, high-profile incident and that alone may drive the outcome far more than the strength of the legal claims.  As is often true in the hospitality industry, the media exposure is sometimes a far bigger concern than the legal costs themselves.

The Centers for Medicare and Medicaid Services (“CMS”) posted an alert (the “Alert”) that confirms that there has been an extension, in certain cases, of the reporting trigger date for Mandatory Insurer Reporting (“MIR”) under Section 111 of the MMSEA.  The Alert provides the new trigger dates based on gross settlement/judgment/other payment (“TPOC”)  values for claims as follows:

Insurance coverage scholarship discussing cyber-liability and cyber-coverage has recently exploded, with authors catastrophizing the lawsuits arising out of social media and Web 2.0 (social networking sites and online platforms including Facebook, MySpace, and Twitter) and prophesying that insurers are somehow ill-equipped to respond to these claims.  Granted, we are seeing an increase in cybertort claims, likely due to the proliferation and tremendous growth of social networking sites and Web 2.0 media.  Cybertort claims may include a defamation claim based on insulting words posted on a Facebook page, a "bodily injury" claim against an online dating service, a disparagement claim based upon rumors and grievances aired by a consumer against a restaurant or automotive repair shop on Yelp.com, sexual harassment/hostile work environment claims arising out of inappropriate emails, products liability claims as a result of drug purchases over the Internet, and critical comments about one’s law firm on Abovethelaw.com. 

However, like "The Law of the Horse", cybertort claims are not all that different than those involving brick-and-mortar institutions and live persons that coverage practitioners have analyzed and evaluated for centuries.  While there are certain aspects of these cybertort claims that may lead to an uptick in number of suits filed, given how much easier it is to establish that the defendant published the words at issue, the coverage framework for addressing these suits remains the same-- and correctly so.  Based on well-established Coverage B jurisprudence, combined with a smattering of time-tested tort principles, insurers should know that they have all the needed tools at their disposal to determine coverage for these cybertort claims.

"The Law of the Horse" is a helpful analogy to understand why insurers should not be overly concerned about cybertort claims.  In the mid-1990s, as the Internet started gaining mainstream prominence, academics opined whether "cyberspace" would radically transform the legal landscape, e.g., employment contracting, antitrust and trade regulation, privacy law, international trade, consumer protection, healthcare, taxation, securities regulations, etc., and thereby require a legal framework with new and different rules and norms to account for its unique aspects.  Some academics even pushed for courses, textbook, treatises, and scholarship devoted entirely to "cyberlaw".  

Judge Frank Easterbrook of the Seventh Circuit vociferously disagreed with the notion of a unique legal framework for "cyberlaw" and compared it to "The Law of the Horse".  Judge Easterbrook analogized that centuries ago, when the problems du jour were disputes involving horses, legal scholarship devoted to horse law, i.e., disputes regarding the sale of horses, the care given by veterinarians to horses, and injuries suffered by individuals kicked by horses, would have been intellectually irresponsible.  Rather, an academic discipline of property law, tort law, and commercial transaction law would have provided the necessary knowledge to understand horse disputes as well as transactions and torts involving other common goods and services.  Likewise, Judge Easterbrook explained that cyberspace disputes are best understood through the prism of property, torts, and contracts, rather than a new and distinct legal framework.  Fifteen years later, these suggestions provide much needed guidance as coverage practitioners grapple with the disputes arising from social media and Web 2.0.

Although the new developments in connection with the Internet are exciting and may seem to be groundbreaking, given the idiosyncrasies of Web 2.0, the coverage questions are highly similar to those pre-Facebook.  For instance, whether someone slandered or libeled another; disparaged a business' goods, products, or services; or violated a person’s right of privacy (i.e., definitions d. and e. of the ISO definition of "personal and advertising injury") is not all that different now with sending Tweets than it was a century earlier with signs posted in the town square (obviously, the speed and distance this material travels is exponentially greater now).  E.g., Hoffman, LLC v. Community Living Solutions, LLC, 795 N.W.2d 62 (Wis. App. 2010) (where website did not mention or reference the plaintiff, there can be no libel or disparagement).  Further, the decision calculus for whether an act was an "accident" or whether a publication was made with knowledge of its falsity is no different for cybertorts and brick-and-mortar torts.  E.g., Four Corners Comms., Inc. v. Graphic Arts Mut. Ins. Co., 25 Misc. 3d 1236A, 906 N.Y.S.2d 772 (2009) (use of a website to compare a competitor to a douche product was an opinion and did not implicate the knowledge of falsity exclusion); Baxter v. Doe, 868 So. 2d 958 (La. App. 2d Cir. 2004) (publication of knowingly false and defamatory statements on an Internet website was uncovered intentional conduct).  The medium in which these claims arise may change, but the governing principles remain the same.

Web 2.0 should nonetheless have a pronounced impact on "advertising injury" coverage.  At a minimum, the Internet should make satisfying the ISO definition of "advertisement" much easier because these sites substantially lower the barriers to disseminating material to a large, geographically diverse swath of people.  Virtually every comment, posting, or submission on these sites is capable of being viewed by a large audience, even though the material may be intended for one person.  

One thing is certain: Web 2.0-based claims will continue to present challenges for insurers.  Still, insurers should feel confident that standard policy language and the existing legal framework applicable to brick-and-mortar institutions provide an adequate framework for addressing coverage for these emerging claims.