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Every company with an online presence, be it a start-up or an old economy model adapting to e-commerce, needs to address this critical question: Is it adequately covered by traditional business insurance? Unfortunately, the answer is: No one knows yet. The two common types of traditional coverage — errors and omissions insurance and the commercial general liability policy — just might do the trick. But prudence probably dictates a greater dose of prevention when it comes to Internet ventures. Already insurers are putting out a variety of ready-made Internet-specific policies, covering everything from data loss to Web defamation. Heavy hitters like New York’s American International Group are leading the charge, though smaller outfits like Atlanta’s InsureTrust.com are making inroads by specializing in e-insurance. Insurers seem happy to provide these new products — at least for now. Only recently have the insurance industry and the courts started to sort out which risks need covering, and which may already be covered by existing forms of insurance. It’s pretty well established that a company with operations on the Internet is now in the business of information publishing, vulnerable to liabilities that typically plague media companies — such as defamation, invasion of privacy, and intellectual property infringement claims. While these causes of action existed long before the Internet, it’s hard to overstate the degree to which cyberspace’s scope magnifies a company’s potential liability. An Internet company’s assets are in some ways more vulnerable to theft or business interruption than those of their brick-and-mortar counterparts. Damages associated with intangible business assets, such as data theft or loss of business capability, pose risks unique to Internet companies. Just ask Yahoo! or Amazon.com, or one of the other e-companies immobilized by hackers last year. Certain claims relating to the performance of software and Internet-related services may be covered by errors and omissions (E&O) policies, which typically cover losses arising from negligently performed services. Commercial general liability policies cover physical or property damage. Depending on the wording of the policy, it may also cover “advertising liability,” which includes claims for defamation, invasion of privacy, and infringement. But insurance companies are anxiously following the fate of a ruling, issued last April, on the meaning of “property damage” in e-commerce. In that Arizona federal district court case, New York’s American Guarantee & Liability Insurance Co. had refused to pay its policyholder, Santa Ana’s Ingram Micro, Inc., for loss of data from a power outage. American argued that the company’s loss did not amount to “physical damage ” under the terms of the policy because the computers retained their ability to function. Ingram’s policy covered “ all risks of direct physical loss or damage from any cause.” Judge Alfredo Marquez disagreed with American’s view, holding instead that “physical damage is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, use, and functionality.” Many industry representatives are calling Marquez’s decision overreaching, predicting that it will be overturned on appeal, or that other courts will be reluctant to follow his lead. But even if it’s upheld, one result seems certain: Insurance companies will start tightening existing policy language to exclude losses resulting from e-commerce. Such policies might state that they cover “risks of direct physical loss or damage from any cause, excluding, however, losses arising out of technology failures, computer downtime, or loss of computer functionality (collectively, �Technology Losses’) regardless of the cause of such Technology Losses.” But why take the chance that online activity is covered by existing policies when companies can purchase coverage designed to protect against the particular risks inherent in going on the Internet? Consider these ready-made policies now available: � American International Group covers losses from defamation, invasion of privacy, E&O, viruses, and hackers. � Chubb Group of Insurance Companies, of Warren, New Jersey, covers claims stemming from the dissemination or use of content on a company’s Web site, or transaction of business over that site. � San Jose’s Counterpane Internet Security, Inc., in association with Lloyd’s of London, New York’s Frank Crystal & Co., and London’s Safeonline Limited, covers loss of revenue and information assets caused by security failures (unauthorized access to data). � Reston, Virginia’s ICSA.net offers a policy called TruSecure that covers losses due to security breaches. � InsureTrust.com LLC in Atlanta provides coverage for losses due to security breaches, access problems, computer viruses, and theft of data. � Marsh Insurance Company, Inc., of New York has a policy covering losses due to programming errors, network and Web site disruptions, theft of information assets, content-related injuries, and breach of privacy. � Westport Insurance Corporation (based in Overland Park, Kansas, and a subsidiary of General Electric Capital Corporation) has an E&O policy specifically for computer consultants and systems designers. Businesses with Web presences seem to welcome the new, customized policies, such as Chubb’s Safety Net and AIG’s Net Advantage. For insurance companies, they should be moneymakers. Then again, the potential for damage can be enormous; some are even betting that the Internet will be the next source of catastrophe for the entire insurance industry. The fear is that massive downtime will render the Internet immobile, bring e-commerce to a screeching halt, and cause losses in the tens of billions of dollars. But even in the face of this cyber apocalypse, it’s hard to imagine that e-commerce can be curtailed, much less be stopped or remain uninsured. Given the Internet’s extraordinary lure, chances are strong that e-insurance is here to stay.

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