Social networking Internet sites present their users with a vastarray of personal and business opportunities, but theseopportunities are accompanied by new risks.

As of September, the number of Internet users topped 2 billionand the explosion over the last 20 years has revolutionizedcommunications with the use of social networking sites andblogs.

In fact, Internet users now spend a majority of their time onsocial networking sites. As of last year, Facebook passed Google asthe most visited site on the Internet.

It is essential that individuals and businesses, as well astheir insurers, be aware of the significant—and yet to be fullyexplored—legal issues created by use of this media tool.

Information posted on social networking sites instantaneouslyget transmitted—reaching consumers and competitors—vastlyincreasing the exposure to liability for claims of falseadvertising, unfair consumer commercial practices, defamation, andpatent, copyright and trademark infringement, to name a few.

Defamation and Cyber-bullying

The rise in popularity of social networks, blogs, chat rooms andother interactive websites has created a growth of “cyber-bullying”incidents. One of the most recent and tragic incidents occurredwhen a Rutgers University student committed suicide after hisroommate used a webcam to video the student's intimate encounterwith another man. The roommate has been charged with the hate crimeof bias intimidation.

Similarly, the increased use of social media has spawned acorresponding increase in defamation claims. For example, inFinkel v. Dauber, the plaintiff was the subject ofridicule on a Facebook group started by six of her fellowclassmates.

The site contained derogatory sexual remarks posted by themembers of the group, including statements that the plaintiffengaged in sexual activity with multiple individuals at the sametime, and that she had contracted the HIV virus.

In D.C. v. R.R., a student initiated an action fordefamation after derogatory statements and threats were posted byother students on the comments section of D.C.'swebsite.

Claims of defamation via interactive websites and socialnetworks, as opposed to claims involving traditional print orbroadcast media, broaden the number of potential defendants.Plaintiffs have sued not only the members of a social media group,but also the members' parents. In D.C. v. R.R., theplaintiff filed suit against the students who allegedly posted thecomments, as well as their parents, the school, its board ofdirectors and three school employees.

Trademark Infringement

Trademark infringement is generally defined under the Lanham Actas copying or imitating a trademark in connection with the sale ofgoods in a way that is likely to confuse consumers about the sourceof those goods.

Social networking sites are fertile ground for infringement oftrademarks by competitors, current or former employees, and evenunsatisfied customers. For example, in Asanov v. Legeido,an employer sued its former employee for trademark infringementwhere the employee represented on LinkedIn that he was the owner ofthe employer's newest company.

In Doctor's Associates, Inc. v. Subway.SY, LLC, arestaurant sues a competitor for trademark infringement for usingthe Subway name and well-known Subway slogans on advertisementsposted on its Facebook page.

False Designation and Advertising

In addition to trademark infringement, the Lanham Act alsoprohibits “false designation of origin” and false or deceptiveadvertising.

Many social media users are not as careful in reviewing and/orscreening the information that is used for marketing purposes.Thus, the increase in social networking sites may lead to morebusiness disputes over the content of such advertising.

For example in BlueStar Management LLC v. The Annex Club,LLC, a proprietor of a rooftop club at Wrigley Field filed asuit against a competitor for false designation and falseadvertising. The competitor allegedly used photographic images ofthe claimant's club in their advertisements. The claimant allegedthat the advertisements were misleading and causing consumers toincorrectly believe that they could purchase tickets to theclaimant's club by contacting the competitor.

Invasion of Privacy

Not only can a person instantly access information on anysubject that he or she may desire to learn more about, in manycases people can also instantly access a wealth of informationabout other individuals—much of which that individual may wish tokeep private.

The issue of invasion of privacy via social networking sites wasrecently addressed in Yath v. Fairview Clinics, N.P., inwhich an individual made a claim against an employee of a medicalclinic who accessed her medical records and posted the informationon a MySpace page.

Since Yath's private information was posted on a public websitethat anyone could view, it was made available to the public atlarge and as such, was “publicized” for the purposes of an invasionof privacy claim based on public disclosure of private facts.

Insurance Coverage

Lawsuits involving social media in one aspect or another are onthe rise. Given the number of people and organizations who areparticipating in social networking, the universe of potentialplaintiffs is staggering. Therefore, individuals andorganizations are looking more and more to the insurance industryto provide protection from the risks that participation in socialmedia can create.

Traditional policies that are widely available to consumers,such as homeowner and commercial general liability policies, maynot be sufficient to protect either the individual or theorganization from these new and emerging risks.

What products are insurers developing to fill the gaps left bythe traditional policies?

Homeowners' Policies

Will a homeowners' policy provide coverage to the student andparent defendants accused of defamation in Finkel v.Dauber or to the individual defendant accused of invasion ofprivacy in Yath v. Fairview Clinics? The answer liesin courts' interpretation of the terms contained in suchpolicies.

Homeowners' insurance policies issued today generally containliability coverage. Under many of these policies, coverage isprovided for claims or suits brought against the policyholder for“bodily injury” or “property damage” arising out of an“occurrence.”

Most courts have held that injuries such as mental anguish—whichis the most common injury alleged in defamation cases—standingalone, do not constitute “bodily injury.” Additionally, most courtsare in agreement that offenses such as defamation and invasion ofprivacy cannot constitute an “occurrence,” which is usually definedas “an accident”.

Likewise, offenses such as trademark or copyright infringement,or violations of the Lanham Act such as false designation or falseadvertising are unlikely to be covered by homeowners' policiesbecause the very nature of these causes of actions involves acommercial enterprise, which puts them squarely within theexclusion contained in most homeowners' policies for injury arisingout of business pursuits.

Commercial General Liability Policies—AdInjury

The typical commercial general liability policy is divided intotwo main categories: bodily injury and property damage coverage(Coverage A), and personal and advertising injury coverage(Coverage B). Most insureds attempt to seek coverage fordefamation, invasion of privacy and intellectual property claimsunder Coverage B for personal injury or advertising injury.

The initial inquiry in the advertising injury coverage analysisis whether the complained-of act falls within one of the enumeratedoffenses covered by the applicable policy.

If the policyholder's alleged actions do not fall within one ofthe described types of conduct, there is no coverage. Perhaps evenmore important is the requirement that the injury allegedly causedby the enumerated offense must have occurred “in the course of” theinsured's “advertising activities.”

In essence, there is no coverage for a loss that occurs outsideof the policyholder's efforts to advertise its goods, products, orservices. Therefore, much of the liability created by the use ofsocial media would not be covered under provisions for advertisingliability.

For example, the defendants in D.C. v. R.R. andFinkel v. Daubert accused of defamation may not haveliability coverage because the defamatory statements were not“advertising activity” nor were they made in the course ofadvertising. On the other hand, if an insured's accused ofviolating a competitor's intellectual property rights viaadvertising through social media, there may be coverage for theclaims.

Personal Injury

The claims set forth in the Yath v. Fairview Clinicscase is the perfect example of a situation where a CGL policy'scoverage for personal injury would most likely protect an insuredwhere the policy's coverage for advertising injury would fallshort.

Since the patient's suit did not arise in the course of theclinic's advertising activities, CGL coverage for advertisinginjury would not typically respond to such a lawsuit.

However, since coverage for personal injury includes coveragefor claims arising out of the enumerated offense of wrong oral orwritten publications that violates a person's right of privacy, theclinic could be entitled to coverage for the lawsuit under its CGLpolicy, assuming there was no exclusion applicable to theclaim.

New Products to Fill the Gaps?

Insurers in the property and liability markets are developingnew products that focus specifically on the kinds of risks raisedby the use of social media for both individuals and businesses.

Cyber-liability policies are entering the market to offerprotection from third party risks such as transmissions of viruses,failure to prevent unauthorized access to a computer system by athird party, disclosure of confidential material, and allegationsof intellectual property infringement and defamation resulting fromemails, social networking sites and blogs.

Since these policies are in an early stage of development, it isdifficult to predict whether they will function as planned.

In light of the rise in lawsuits involving social media,however, it is likely that courts will have many opportunities tointerpret the scope of coverage provided in the near future.

Insurers in other markets are also beginning to educatethemselves on the need for such policies. In 2008, the MediaBloggers Association announced that it planned to launch programsproviding liability insurance for bloggers against claims fordefamation, invasion of privacy and other allegations arising outof blogging activities.

While the ever-expanding networks and virtual worlds created bysocial media have clearly produced new risks, many of which werenot contemplated by the more traditional categories of insurancepolicies; in essence, new risks create new opportunities for theinsurance industry to develop products to fill a growingdemand.

Michael Hamilton and Elizabeth Dill are attorneys withNelson, Levine, deLuca & Horst. Michael Hamilton chairs thefirm's National Insurance Coverage Group. Dill is an associate inthe group.