Check it Out: Do You Need Social Media Liability Insurance?

Some worries come with opening any new tech channel — that bad guys might be able to use it to access your data, steal customer identities, pass an employee some malicious software, etc. — but the casual and explosive nature of conversations in Web 2.0 may expose retailers to a new world of risks, some more commonly associated with media companies.

The exposure of such missteps is largely unexplored. Last year, several lawsuits were filed by schools against students who used social media to vent about (mock) their institutions online. In May, The New York Times ran an article about Justin Kurtz, who started a Facebook group called Kalamazoo Residents Against T&J Towing, organizing the Michigan neighborhood against a company that towed his car in allegedly bogus circumstances. The group now has about 14,000 members, and T&J Towing has filed a $75,000 defamation lawsuit over what it claims is lost business. People are suing over what's said on social networks (don't get me started on the number of divorces citing Facebook evidence), and your business is at risk on either side of those cases.

Hopefully no one in your company would start the Citizens Against Our Competitor Facebook group, but you don't get insurance for things you intend to do. It's not hard to imagine a comment, photo or video posted quickly — to take advantage of the instantaneous nature of Web 2.0 — rubbing someone the wrong way and opening a can of legal worms. Most of your company's communications through Twitter, Facebook, blogs, etc. would probably be classified as promotional activities in a court of law, meaning they have to stand up to the same standards as other promotional messages, which is a higher standard than your average blogger or journalist is held to, and may expose you to greater liability.

On the flip side, consider T&J's situation, trying to fend off horrendous PR from a single influential complaint amplified by the power of social networks. Similarly, musician Dave Carroll skewered United Airlines in a 2009 YouTube video for breaking his guitar, and the video became one of YouTube's biggest hits. How much would you lose if a singular customer service misstep ballooned into a catchy tune that made Top 40-level impressions on hip consumers in prime marketing demographics?

Reading the Currents
There haven't been that many social media lawsuits yet. As the platforms become more widely used and socially integral, however, movement in the legal and insurance industries reveal some organizations taking an interest.

The Pace Law Review just put out a call for articles on social media and the law to run in an issue this fall: "We hope to publish articles that examine the evolving relationships between this technology and the many different areas of law it impacts, including evidence, electronic discovery, privacy, ethics and tort. We believe there is room for a lively written discussion on these subjects."

When lawyers expect a lively discussion on tort, insurance firms won't be far behind. Inspired by the implications of Carroll's video, the Chubb Group put a focus on social media liability earlier this year with press releases highlighting potential risks. It also hosted a "crowd sourcing" summit on managing social media risk that aimed "to identify and reduce the emerging risks businesses face as a result of Web 2.0 platforms like Facebook, YouTube, Twitter, and corporate blogs," i.e., to come up with new insurance products for businesses.

Are you covered for social media damages? Time to figure out if you need to be.