Landscape of Miscellaneous Professional Liability:
Something Old - Something New

Computers, computer systems, Intranets and the Internet have changed the way business is conducted, and professional services are performed. In the changing landscape of today’s business, technology offers professionals the opportunity to both increase efficiencies and expand their client base. Professionals are now able to reach almost all parts of the world, developing business relationships with clients/customers that just a few years ago would not have been considered feasible. The world economy has arrived at Main Street. “Mom and Pop service stores” have created virtual storefronts that may be open 24 hours a day, every day, everywhere.

In the United States alone, it is estimated that approximately 215 million computers will be in use in the year 2000. Moreover, there are estimates that by 2001, there will be over 707 million users of the Internet. Finally, the market size for E-commerce, which continues to grow at a staggering rate, was approximately $8 billion as of the 4th quarter of 1998.

Great! Professionals have the opportunity to expand their businesses, increase their revenues and (hopefully) earnings, and efficiencies may be more quickly achieved. What could happen along the path to prosperity? Many clients/customers will be satisfied; some may not. To be sure, the traditional exposures and liabilities of providing a professional service to others for a fee are alive and well. Clients/customers will still bring claims against professionals for a wrongful act in connection with the professional service, if they feel that they have suffered a loss due to the acts or omissions of the Professional. To that end, long ago the insurance industry created markets to provide a certain level of protection to these professionals.

Given the vast array of professional services being offered in today’s service economy, Miscellaneous Professional Liability (MPL) departments at various insurance companies have been dedicated to underwriting the multiplicity of classes of business and their accompanying risks for the appropriate Errors and Omissions insurance. Professional services considered by a typical MPL department range from advertisers, broadcasters, and consultants to real estate agents, seedsman, travel agents...and much, much more. Typically, professional services are specifically defined in an MPL Errors and Omissions policy on the declarations page, and involve services that require special learning or intellectual skill, performed by the insured in the ordinary conduct of its profession for others for a fee, remuneration, or other consideration. For example, MPL Policies have been crafted to provide coverage for professionals for the following claim representative scenarios:

• A real estate agent assists in the purchase of a home. After closing, the purchasers discover structural defects and deficiencies. Unable to locate the sellers, they turn to the real estate agent and claim the agent breached his/her duty to conduct a reasonably competent and diligent visual inspection; was negligent; and made misrepresentations.
• A third party administrator providing various administrative services for employee benefits plans. Claims that the TPA failed to make required payments and failed to properly invest deposits.
• An advertising agency engaged for a promotion that included design and copy. The ad agency’s proofreading mistake led to the customer’s paying for production of inaccurate and unacceptable promotional products. A claim can be brought for negligence in proofreading.

Traditionally, professionals performed services for their clients either through face-to-face dealings, the mail/courier, or telephone. The professional delivered his or her service in a somewhat secure environment. Business is changing. Professionals can now set up a website to expand their businesses over the Internet.

A growing percentage of the submissions received by a typical MPL Department are candidates for additional coverage being offered to protect against Network Computer Liability. A travel agent may establish an interactive website to conduct professional services online. A real estate brokerage firm may digitize its inventory and permit clients to access a multitude of properties without leaving their own office. A consultant may research a client’s project through online analysis or an interactive questionnaire, etc...

The change in the way business is being done has created additional exposures that can be covered under separate policies of insurance or in certain instances, extensions of coverage under existing MPL insurance policies.

Professionals may use a website as simply a billboard to promote their professional services. The “billboard” type of a website provides the ability to reach a broad and diverse audience in a cost-effective manner. It can be used to educate the public on services available, convey information, or provide contact information (a type of electronic calling card).

To the extent the website is utilized to provide professional services to others for a fee, such activities may carry with them multimedia exposures. The website medium may expose the professional to claims for libel, slander, invasion of privacy, copyright or trademark infringement, or plagiarism. Some insurance markets are capable of extending coverage for such exposures under a traditional MPL policy. Sometimes, however, an exposure separate from professional services errors and omissions exists. The exposure arises not necessarily because of the professional service being performed, but because of the medium that is utilized. For example, professionals can enter the arena of e-commerce. E-commerce may be defined as the completion of an on-line business transaction between a company and a client/customer utilizing the Internet or a network of computers.

The use of the internet for e-commerce presents access issues: the ability for the authorized client to access the appropriate portions of a website and the integrity of data, and what happens when things go wrong with either of those areas. Computer hacking or cracking incidents can give rise to lawsuits from customers, suppliers, and other third parties that may experience losses when computer systems are compromised. The growth of Internet-based commerce, increased connectivity, and greater dependence on electronic data create new liability exposures that are not addressed by traditional policies. New products have been designed to fill these gaps. Policies are being written to provide coverage for defense costs, settlements, and judgements associated with covered computer network liability claims. Policies respond to a range of circumstances that may trigger third party losses, including failure of computer security systems, theft of electronic data (including credit card numbers), loss or misuse of information, loss of funds, transmission of viruses, denial of access and network shutdowns caused by securities breaches. The multimedia type exposure listed above are also addressed in these new Network Computer Liability type policies. Since Network Computer Liability is a different type of exposure, different underwriting is done to better understand, categorize, and rate the risks. Confidential network risk assessments are increasingly being performed to identify areas of improvement and help in the underwriting process. These new computer insurance products are generally designed for companies that use networks to transact business, transfer funds, store information, or transmit data and can be customized for the specific applicant involved...Including internet service providers, website publishers, etc.

At this point, HFP is a market for both MPL policies and third party Network Computing Liability exposures. HFP can, therefore, cover traditional E&O exposures through an MPL policy and offer coverage for the same professional in their network computing activities. This can be done through our basic MPL contract by adding a Network Computer Liability trigger to the MPL policy.

Along with the rest of the world, the computer revolution and the information age presents the insurance industry with opportunities to underwrite and offer certain coverage to professionals doing business in a nontraditional manner. Miscellaneous professional Liability Errors and Omissions policies are very much in demand and many of those professionals’ business models lend themselves to additional exposures not typically covered under a traditional, MPL policy. The insurance industry has an opportunity to provide additional computer related coverages to existing clients. We are on the forefront of a dynamic time.

For more information, questions, or comments, please contact Jim Donovan (212) 277-0752 of Hartford Financial Product's MPL Department.