In an industry predicated on stability and predictability, new industries and technologies test industry tolerances and procedures.

Gaps in coverage

For example, 3D printing has evolved from emerging risk to manufacturing staple.

As the industry grows however, it faces increased risk exposures including professional liability, products liability, workers' compensation and employers liability, business interruption and supply chain risks, intellectual property challenges, and, like all businesses, an increasing cyberrisk.

However, most traditional or "legacy" insurance products fail to provide sufficient coverage for these risk exposures vis-à-vis the 3D printing industry, just as they fail to adequately protect businesses in other emerging industries that, along with their concomitant risks, simply did not exist when the legacy insurance products covering them were formulated.

Risk profiles grow & evolve

Another example subject to similar coverage challenges involves the "sharing economy," such as ridesharing or home-sharing services. Here, too, policyholders and additional insureds face significant coverage issues and gaps in coverage as their risk profiles grow and evolve.

This article addresses three key coverage concerns related to these and other emerging and evolving industries. Policyholders should consider these issues now, when procuring or renewing their insurance policies, to ensure that these potential gaps are adequately filled prior to a claim.

In the 3D printing industry, the insured may be the entity creating or distributing the digital design, rather than the company actually printing the "product." (Photo: Shutterstock)

Issue 1: Who is the insured and who has the risk?

The first major coverage issue faced by insureds in the 3D printing and sharing economies, and their respective insurers, is the issue of who the coverage is designed to protect, and the related issue of who actually has the risk. For example, consider the products liability risks of property damage or bodily injury as a result of 3D printing activities.

Commercial general liability (CGL) policies typically provide coverage (including defense costs) for liability incurred as a result of bodily injury or property damage caused by the insured's product or completed work. In the 3D printing industry, however, the insured may be the entity creating or distributing the digital design, rather than the company actually printing the "product." This begs the coverage question of whether alleged liability stemming from the resulting product still triggers the digital file creator's or distributor's CGL coverage.

Contractually shift risks

Because these upstream entities may be named in consumer lawsuits or in regulatory investigations, digital design creators and distributors should attempt to contractually shift these risks and an insurance coverage obligation to the downstream manufacturer through the use of carefully drafted indemnity provisions and insurance requirements that require the manufacturer to name the designer and distributor as additional insureds. These entities may also consider requesting a manuscript endorsement to their CGL policy that explicitly provides coverage for this situation as part of the policy's "products-completed operations hazard" coverage.

Businesses involved in the sharing economy, and their insurers, also are confronted with the issues of what risks their existing policies are designed to coverage and what coverage was applied for. For many individuals sharing their homes or vehicles through these services, their individual insurers often may not even be aware of these commercial uses, and thus certainly did not contemplate these uses during policy underwriting.

Commercial uses materially change the risk

Indeed, many personal policies already explicitly exclude commercial use, such as many homeowners' insurance policies. Fortunately for users, many of the businesses facilitating this peer-to-peer market offer insurance to users that is specifically designed for these risks. Nonetheless, to the extent a commercial use is not properly disclosed in the homeowner's, renter's, or driver's personal policy application, the insurer may seek to rescind coverage even for losses unrelated to the commercial sharing use.

Insurance underwriters will no doubt argue that these commercial uses materially change the risk and any failure to disclose, even if innocent, voids coverage. Accordingly, individuals participating in the peer-to-peer marketplace should take care to properly disclose any commercial uses on their insurance policies and evaluate how their personal coverage interacts with coverage afforded by the peer-to-peer service.

Because most D&O policies exclude loss resulting from the insured's rendering of a "professional service," insureds should procure errors and omissions (E&O) insurance to cover risks. (Photo: Fotolia)

Issue 2: Ensuring coverage for management liability risks

Second, directors and officers of companies in these emerging industries routinely face novel regulatory and liability issues, and should thus ensure adequate directors and officers (D&O) coverage for not only the company's executives and directors, but the entity itself. In particular, these entities should ensure that "entity coverage" includes broad coverage for lawsuits, investigations, regulatory actions, alternative dispute resolution, criminal proceedings, and administrative actions.

Importantly, because these entities may be the target of increased regulatory scrutiny due to their unique and evolving risks, insureds should seek broad coverage for both formal and informal investigations, including investigation coverage that does not require that an "insured person" be a "target" of the investigation.

E&O coverage tied to product or service

In addition, emerging risk insureds, particularly those in the 3D printing realm, should ensure that they are covered for damages or economic loss arising from errors or omissions tied to their product or services.

Because most D&O policies exclude loss resulting from the insured's rendering of a "professional service," these insureds should procure errors and omissions (E&O) insurance to cover these risks.

Finally, these insureds should also consider using protective language in end user licensing agreements to protect against these risks, as well as contractual risk transfer through well-crafted indemnity agreements with vendors, clients, and distributors.