Kit Burden

8/13/2019 Kit Burden

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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

Kit Burden

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