UP IN FLAMES: CGL Coverage and The Internet

The year 2000 was an anticlimactic year for the Canadian insurance industry, free from the widely predicted, apocalyptic Y2K claims. While claims managers drew a sigh of relief on January 1, 2000 when Western civilization failed to come to an end, there was also a palpable sense of disappointment that all those seminars and missed holidays might have been for nothing.

Since the “millennium bug” proved to be a no show, industry attention has turned to the newest trend – Internet liability. Most Internet related litigation involves contract issues and intellectual property disputes – occurrences that ordinarily fall outside of the coverage provided by a liability policy.

With the proliferation of homepages, however, every individual and business with a web presence potentially becomes a little printing press with editorial content read around the world. The power to publish and be instantly read by millions carries a great potential for mischief. Traditionally, unless you were a specialty lines company offering an industry program for newspaper publishers, this was an area of coverage that you could safely gloss over. With easy access to usenet discussion groups and bulletin boards, individuals can express their opinions loudly and count on others to respond in kind. Often these forums host messages concerning political or media figures. Many sites are devoted to special interest groups or discuss the merits of products or vendors.

While the Internet may be impossible to regulate from the perspective of content and free speech, when commentary deviates from idle chitchat into angry exchanges or strident assertions, the possibility of an individual or business being defamed becomes a serious problem.

A new flame

Intemperate comments that would be censored by any prudent newspaper or magazine have become so common on the Internet, that a new word has been coined to describe the phenomena. The word is “flaming”.

The “Webopedia”, a popular online dictionary of net jargon, defines a “flame” as, “a searing e-mail or newsgroup message in which the writer attacks another participant in overly harsh, and often personal, terms. Flames are an unfortunate, but inevitable, element of unmoderated conferences.”

In addition to e-mail rants on usenet and chat forums, webpages are increasingly used by political parties, institutions and businesses to disseminate information to the largest possible audiences. Homepages that have an enormous amount of traffic often sell space to advertisers in the form of “banners” that pay a nominal amount every time a visitor follows a link.

It is little wonder that there is confusion as to where these sorts of activities fit, in the no-man’s land between publishing and broadcasting. While the CGL policy provides limited coverage for defamation under its “personal injury” coverage, it was never drafted with the intention of covering the activities of a publisher or broadcaster. These risks have specialized policies that cover their operations in return for an additional premium.

The “Shorter Oxford English Dictionary” defines “publishing” as, “to make publicly or generally known; to declare openly or publicly…To make generally accessible or available; to place before or offer to the public.” The word “broadcast” is defined in The Oxford Paperback Dictionary as, to “make generally known”. It is not difficult to see how a webpage or newsgroup posting could be considered to be either a publication or a broadcast within the dictionary definition of the terms.

Senate revolt

The first landmark Canadian decision to wrestle with the issues of insurance coverage for Internet liability exposure was the recent decision of the British Columbia Supreme Court in Reform Party of Canada v. Western Union Insurance Co. [1999] B.C.J. No. 2794 (B.C.S.C.). The Reform Party of Canada maintained a number of websites on the Internet with a main page at www.reform.ca. As with most websites, visitors navigated through sub-pages by clicking on various “links”. One of the other pages set up by the Party was a Senate Reform homepage at www.senate-reform.ca.

In the spring of 1998, this site featured a provocative page with headings that included “Senators on the Need for an Elected Senate”, “Retirement Dates of Sitting Senators”, and “Senate Scandals”.

Senate Scandals had a David Letterman style “Top 10” list of Canadian Senators that had allegedly been involved in impropriety of one sort or another. Amongst the parties named was Senator Edward Lawson of B.C. The web page insinuated that this individual had been involved in the U.S. government’s anti-corruption lawsuit against the Teamsters as well as a stock manipulation scandal.

On July 15, 1998, senator Lawson sued the Reform Party for “falsely and maliciously publishing, or causing to be published” defamatory statements on the Senate Reform homepage.

The Reform Party was insured under a commercial general liability insurance policy issued by the Western Union Insurance Co. Western Union denied coverage on the grounds that the allegations did not fall within the coverage provided for “personal injury” or “advertising injury” under the CGL policy. The definition of “personal injury” in the CGL policy provides coverage for the publication of a libel or other defamatory material, “except publications or utterances in the course of or related to advertising, publishing, broadcasting or telecasting activities conducted by or on behalf of the named insured”.

Coverage was also provided under the policy for “advertising injury” which was defined as injuries occurring “in the course of the named insured’s advertising activities”. The insurer took the position that the Internet posting did not constitute or occur in the course of an “advertising activity”, and accordingly fell outside coverage.

Personal injury argument

The first issue dealt with by the Court was whether the allegations fell within the coverage provided for “personal injury”. The Reform Party relied on the decisions of the Alberta Court of Queens Bench in P.C.S. Investments Ltd. v. Dominion of Canada General Insurance Co. (1994), 18 Alta.L.R. (3d) 270 (Alta.Q.B.), varied on other grounds at (1996) 37 Alta.L.R. (3d) 38 (Alta.C.A.).

The allegations against P.C.S. Investments were that it had mailed a defamatory letter to 130 members of the insurance industry. The CGL policy in that case also provided coverage for personal injury, “excluding advertising, publishing, broadcasting or telecasting”. The judge in the P.C.S. Investments case concluded that distribution to 130 persons was not a “widespread or public distribution to a broad audience”, and was not a “publication” within the meaning of the exclusion. The court was of the opinion that the definition of “publication” in the clause granting coverage should be read as broader than the definition of “publishing” in the exclusion clause.

The court also found that it was “reasonable to conclude” that a distribution to 130 persons did not exceed the coverage afforded by the policy and that the insurer had a duty to defend with respect to the allegation of libel and defamation.

Back in Vancouver, counsel for the Reform Party argued that it was appropriate to compare the number of mailings in the P.C.S. Investments case with the number of visits recorded to the Senate Scandals webpage during the period that the “Top Ten” list had been up. In a period of 12 weeks, there were 738 successful hits to the main Senate Reform website, but just 173 hits to the Senate Scandals page, an average of about two users per day. Counsel argued that 173 hits was “within the range” of the 130 letters mailed in the Alberta decision.

The insured also argued that the Senate Reform page was not a publication per se, since it did not actively distribute printed material. Instead, the Senate Scandals page was only accessible to those who became aware of the site and were interested enough to browse it. In support of this proposition, counsel relied upon the famous decision of the U.S. Supreme Court in Reno v. American Civil Liberties Union, [1997] S.C.T.-Q.L. 148, (1997), 138 L. Ed. 2d 874 which held that the Internet was not as invasive as radio or television (the U.S. Supreme Court noted that instead of simply pressing a button or turning a knob like a radio or television, a series of affirmative steps were needed to access specific material – specifically pornographic text and images). In response, counsel for Western Union argued that there were potentially millions of Internet users searching the world-wide-web and that the Internet was in fact, well on the way to eclipsing newspapers as a primary source of news.

Coverage denied

Judge Loo adopted a “common sense” approach to both arguments, writing at para. 16: “In my view, whether the Internet may or may not replace newspapers is of little assistance in determining whether the material was published or broadcast. Similarly, in my view the number of ‘hits’ is of little assistance in determining whether posting the material on the website was a publication ‘in the course of or related to publishing’ activities conducted by or on behalf of the petitioner. To accept the petitioner’s argument means that if the same article were placed in a newspaper but only 173 persons actually turned to and read the page, it would not be ‘publishing’.” The judge agreed that the Reform Party was a federal political party operating to achieve specified political objectives and clearly not in the business of advertising, broadcasting, publishing or telecasting.

The judge reviewed the statement of defence in the underlying action, however, and noted that the Reform Party had described the allegedly defamatory statements as “…accurate summaries or verbatim repetitions of previously published media reports concerning two different court proceedings”, and claimed that the media reports were privileged publications. Judge Loo wrote at para. 24 of her judgment, “the statement of defence supports my view that the posting of the material over the website constituted, or was related to ‘publishing’ or ‘broadcasting’ activities conducted by the petitioner, and I therefore find the allegations in the underlying action fall outside the coverage afforded for personal injury”. Having found that the claim fell outside of the personal injury coverage as a “publishing” or “broadcasting” activity, the court turned to the question as to whether the site would fall within the coverage provided for advertising injury.

The court noted that “advertising” generally refers to a seller promoting its goods, services or products and that this meaning was supported by other provisions in the policy. “Advertising” was defined in the policy as “goods, products, or services sold, offered for sale or advertised”, while “comparative advertising” was defined to mean “the comparing of related or similar products or services in which the advertising material refers to one or more competitors either by name or implication”. The judge found that the posting of the Senate Scandals article on the website was not intended to promote the petitioner’s goods, products or services, but constituted the publishing or broadcasting of a political message and public policy position on senate reform. Accordingly, the claim against the insurer was dismissed.

On appeal

An appeal of the order of Madam Justice Loo was heard on December 5, 2000 by the British Columbia Court of Appeal. Their decision is still reserved at the time this article was written. It should also be noted that in November 2000, the Alberta Court of Queen’s Bench found that libel allegations against the Reform Party fell within the advertising coverage in the Western Union insurance policy in an instance where the allegedly defamatory statements were contained in fundraising newsletters. Reform Fund Canada v. Western Union Insurance (2000) (Unreported) 9901-15884.

With an Internet presence, your insureds may unknowingly have liability exposure for activities that would ordinarily fall within the definition of publishing or broadcasting, although they are not engaged in those industries. The decision of the B.C. Court of Appeal will be the first round in what promises to be one of the most contentious issues in Internet insurance coverage for some decades to come.

The writer would like to thank and acknowledge Bruce Butler and Jonathan Meadows of Harper Grey Easton in Vancouver, B.C. for their assistance.