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8/13/2019 Kit Burden
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BLG
E-COMMERCE RISKS: RISK MANAGEMENTIN PROFESSIONAL INDEMNITY
KIT BURDEN
PARTNER, BARLOW LYDE & GILBERT
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WELL, YOU WOULD SAY THAT WOULDNT YOU
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ACTUAL CLAIMS AND LIABILITIES;
Virgin
Argos
IBM
Demon Internet
British Gas
Norwich Union
YAHOO
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CONTRACTUAL RISKS
Impersonal nature of transactions
Trade with unfamiliar/unknown parties
Incorporation of contractual terms
RISK MITIGATION:
(1) Structure of the Website
(2) Incorporate appropriate terms
(3) Keep under regular review
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JURISDICTIONAL RISKS Delivery Risks
where is the customer located?
what are the implications of delivery?
Regulation
attitude of the UK regulators
foreign regulation
Law and Venue
long arm jurisdictions
where are you trading?
RISK MITIGATION:
(1) Consider targeting specific markets
(2) Carry out local legal reviews for select markets
(3) Incorporate choice of law/jurisdiction clauses
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DATA RISKS Key importance of data
Data Protection Act 1998the new regime Key requirements:
notify purposes for which data will be used
keep data up to date and accurate
maintain security
restrictions on transborder data flows
RISK MITIGATION:
(1) Ensure proper notifications made
(2) Use data only for authorised purposes
(3) Inform data subjects of purposes for which data is gathered(4) Prepare a data retention/update policy
(5) Maintain adequate levels of system security
(6) Ensure adequate contracted protection for transfers out of the E.U
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CONTENT LIABILITY
Acts by employees
Liability to third parties, e.g
defamation claims
IPR infringements
domain name claims
RISK MITIGATION:
(1) Company policy on internet usage and e-mail
(2) Disclaimers on e-mails
(3) Disclaimers on website and hypertext links
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HOW DOES THIS IMPACT P.I. INSURERS?
E-commerce risks affect:
E-commerce service providers (ISPs, hosts, website designers)
Management and IT consultants
Professional advisors (lawyers, bankers, auditors)
Directors and Officers
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E-COMMERCE SERVICE PROVIDERS
Failure to perform likely to impact directly upon customers
Quantum of loss for customers potentially high (owing to reliance
upon technology)
Emerging claims history, but still sketchy for new services such asTrusted Third Parties
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MANAGEMENT AND IT CONSULTANTS
Heavily involved in E-commerce revolution
Exposed to claims if projects fail/get delayed/are misconceived
Hypothetical example:
(1) Consultancy A engaged to implement IT systems underpinningnew dot.com by 1 July 2001;
(2) Delays in implementation mean work not finished until now;
(3) Downturn in market in the meantime means dot.com cannot do
IPO to raise cash.(4) Consultancy A sued for lost opportunity
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PROFESSIONAL ADVISORS
Allprofessional advisors need to be aware of the challenge which theweb poses in order to provide proper advice
Lawyersneed to be aware of risks posed by multi-jurisdictionalnature of the internet and widening body of potential laws andregulations
Bankersneed to take care in way in which they provide advice todot.com and other e-commerce clients regarding their financerequirements
Auditorsat risk in relation to audits of dot.com and new valuationtechniques (e.g. Amazon, e-district)
Brokers - need to be aware of what the risks are, so as to adviceinsureds about the scope of cover offered by their current portfolioand their potential future requirements
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DIRECTORS AND OFFICERS
Duties: both common law and fiduciary
Must understand the risks in order to formulate a risk/asset
management strategy
Particular risks posed by dot.com crash: wrongful trading under s.214Insolvency Act 1986
Position of internet incubators?
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Impact on the Claims Process
More likely to have foreign element
More likely to be facing unfamiliar laws/regulations
Expensive discovery process
Cultural impacts:
(1) use of email internally
(2) use of the internet as a tool in the litigation
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THANK YOU