When no love is lost

Emerging tech companies are increasingly facing vicarious liability for how people are using their dating apps, ridesharing apps, social networking platforms, or even MMOs (massive multiplayer online games). For insurers, that may mean a refresh of traditional errors and emissions (E&O) policies.

As recently as 10 years ago, traditional technology E&O policies were designed for business-to-business service providers such as project managers, IT consultants, or accounting software providers. They covered risks such as breach of contract or negligence (if there was some improper advice given, for example), or a delay in project delivery.

“A traditional E&O policy works very well in that environment,” said Charlie Murray, international technology team leader with CFC Underwriting. “You can deploy a simple tick-box underwriting approach, which has been very much embraced by the tech E&O market,” especially by small- and medium-sized businesses.

For traditional E&O risks, for example, underwriters consider factors like the tech company’s revenue, largest contract values and the scope of services being rendered. Emerging tech companies may still need these coverages, but they also likely need coverage for vicarious liability, something not covered in a basic, one-size-fits-all tech E&O policy.

“When you’re underwriting an emerging tech account, you’re not really underwriting the business, per se,” Murray explained. “You’re underwriting what other people are going to do with that tech. You really need to make sure there’s that vicarious element in there, because a traditional tech E&O policy will not always provide that.”

How does vicarious liability play out for an emerging tech company? Imagine a dating app company that is found negligent for the actions of its underlying users when one party harms another.

Murray cites the following example: “Harry and Sally go on a date. They’ve met through [the dating app] and something untoward happens to one of those parties. Who’s going to be brought into that suit? It’s likely going to be the dating app. That’s the same for many other different emerging tech companies; it’s the same with social networks. That big tech company with big, deep pockets is going to be brought into any action.”

A lawsuit may allege the dating app is liable, says Murray. “It then ties back to the platform, arguing that one of those parties [arranged] the meet-up through the user-generated content posted on the platform, and the platform didn’t appropriately vet the users on the platform. As a result, the platform itself, the dating app, is negligent and responsible.”

A traditional E&O policy may not respond to a vicarious liability claim because it’s not the platform that’s committed the wrongful act.

Emerging tech companies may also need cover for either defamation (for user-generated posts online), or for business interruption arising from a cyber event and contingent business interruption. Or, since big tech companies have been known to circumvent regulations, they may also want cover for regulatory breaches and associated fines brought against a company as a result of its tech activities — coverage not found in a traditional tech E&O policy.

Sometimes, along comes a claim that nobody ever could have imagined. CFC wrote a policy for a Canadian client involved an online multi-player, horse-themed roleplaying game. The insured company operated the game, which immerses players in an adventure island scenario. Players can care for and train their horses, interact with other players (real-life friends or strangers), and solve challenges and mysteries.

“The exposure is very much driven by the number of interactions on the platform between the users,” explains Murray, whose London, U.K.-based company writes $13-million worth of tech E&O premium in Canada as part of its $80-billion book of business in the country. “The more interactions you’ve got, the more I might talk with another horse owner, the more chances there are for defamatory or offensive user-generated content. That’s going to drive those vicarious liability suits against the insured.”