United States: Swipe Right on Insurance: Risks and Coverage Implications for Mobile Apps and Social Media Platforms

Originally published by Anderson Kill's Policyholder Advisor, September/October 2017

While high-profile cyber breaches of major government and corporate databases continue to dominate headlines, less consideration has been paid to the ever-increasing cyber risks associated with the use of personal mobile devices and their apps, including those connected to so­cial media.

The use of mobile apps and social media has nevertheless created new, evolving risks for businesses that interact with customers through these platforms. Policyholders need to be aware of such risks. Importantly, poli­cyholders also must scrutinize the insurance coverage options available to cover any poten­tial liabilities.

An Explosion of Apps and Social Media

A growing number of transactions — rang­ing from the personal to the commercial — are performed in the palm of our hands using mobile apps installed on our now-ubiquitous smartphones and other portable devices.

More than 2 million apps are available for download on the iPhone alone.1 Some might help you find love with one swipe, while others can help you transact multimillion dollar in­ternational trades with one click. According to eMarketer, time spent with smartphones and tablets increasingly skews toward apps rather than the mobile web.2 In-app usage is expected to account for 89.2% of smartphone time and 76.8% of tablet time in 2017.3 Analysts estimate that in 2016 mobile phone users downloaded some 90 billion apps and spent 900 billion hours using them.4

The average person now spends nearly two hours on social media every day.5 A study by Mediakix recently calculated that Facebook users will spend an average of 35 minutes a day on the platform.6 Sixty percent of the time spent on social media is facilitated by a mobile device.7

It is only a matter of time before all com­panies are either utilizing their own mobile apps or relying on third-party apps to ser­vice customers or enable transactions. Most companies already have some social media presence or are figuring out how to best use the technology to their benefit. Social media ad spend alone is expected to reach $36 bil­lion in 2017.8

A Risky Business

But as with any new technology, there are risks involved in the use of mobile apps and social media platforms.

More than 1.5 million new incidents of mobile malware were detected by McAfee Labs in just the first quarter of 2017.9 While big mobile players such as Apple and An­droid continue to improve their platforms, it is impossible to keep up with the pletho­ra of malicious actors that speedily evolve and constantly introduce new pernicious forms of malware. A RiskIQ study found that every 60 seconds 818 pieces of unique malware are deployed, along with 1,214 ransomware attacks, and more than 100,000 phishing emails.10

At a recent presentation by the FBI, a spe­cial agent involved with the U.S. Secret Ser­vice's Electronic Crimes Task Force noted that malware in mobile devices may become mainstream in the next five years.11 When per­forming transactions using mobile apps, users often input highly sensitive data, including personal financial and confidential health de­tails. Yet security is still not a top priority in app design, with some apps allowing users to store or pass credentials in the clear or by us­ing weak encryption.

A Changing Legal Landscape

Mobile app and social media use by com­panies has triggered new waves of regulatory actions, as well as civil litigation.

The Food and Drug Administration has provided insight on its views and specific examples of how its authority may apply to mobile medical apps, while the Federal Trade Commission and other regulators have already brought app-related enforce­ment actions based upon alleged violations of privacy. Mobile app users have brought their own suits too. Tech giant Google has faced litigation from its Google Wallet users alleging violations of the Stored Communi­cations Act and consumer protection laws.

Companies also now face growing legal re­percussions, such as lawsuits for defamation and copyright infringement, related to their social media presence. For instance, while the parties ultimately settled, the entity that owns the famous photograph of firemen raising a flag above Ground Zero in the hours after the September 11, 2001, attacks sued Fox News for posting a slightly altered version of the photo­graph to Facebook.

In addition, as noted by Emy Donavan, global head of Cyber for Allianz, "Any cyber event that significantly impacts a company's reputation and its share price could result in shareholder action."12

Insurance Coverage Implications

In the face of the changing regulatory landscape and the increased potential for liability, policyholders need to review the insurance coverage options available under both traditional commercial liability and de­veloping cyber insurance policies that may cover the risks associated with mobile apps and social media.

Policyholders may be able to look to tradi­tional commercial general liability insurance policies, which often provide coverage for per­sonal and advertising injury and might afford coverage for claims such as libel and copyright infringement stemming from a company's so­cial media presence.

Policyholders can also look to their di­rectors and officers coverage and errors and omissions coverage. Shareholders now ex­pect that good corporate governance and oversight must include safeguarding a com­pany's cybersystems and data. As such, poli­cyholders should maintain responsive D&O insurance coverage for potential cyber claims that might affect the most senior levels of their companies. D&O policies may respond to a variety of cyber-related allegations be­cause such claims can qualify as a "wrongful act" under D&O policies. Another potential source of coverage is E&O policies, which provide coverage for claims associated with a company's errors or omissions in rendering its professional services.

While standard commercial liability poli­cies, D&O, and E&O policies are potential sources of coverage, these policies might have exclusions meant to disclaim coverage for cyber-related events. Further, insurance com­panies have become increasingly aware of the risks related to mobile apps and social media, and are now inserting exclusions meant to limit coverage for liabilities connected to such activities. This trend has made it important for policyholders to consider buying separate cy­ber insurance policies.

The landscape for cyber-specific policies is still emerging, with little consistency be­tween the cybersecurity programs offered by the major insurance companies, including various exclusions specific to mobile devic­es. For example, some cyber policies include an exclusion barring coverage when a breach occurs through an unencrypted mobile de­vice. Other cyber policies exclude coverage where the policyholder fails to follow "mini­mum required security practices," employ "best security practices," or comply with its own security policy. Insurance companies already have relied on such exclusions in cyber policies to disclaim coverage, and no doubt will continue to do so. Litigation has ensued where these types of exclusions were at issue, and surely will continue in the fu­ture as companies face unexpected liabilities related to mobile apps and social media. See Columbia Casualty Co. v. Cottage Health Sys­tem, no. 2:15-cv-03432, (C.D.Cal 2015).

Policyholders must be mindful of these evolving exclusions in order to maximize cov­erage and to avoid the gaps in coverage that such exclusions create.

A Path Forward

According to Christine Marciano, presi­dent of Cyber Data Risk Managers, "As technology risks continue to evolve, many carriers are starting to pull back on the types of industries and risks they will cov­er."13 While policyholders might be able to look to traditional policies such as those for general liability, D&O, and E&O as poten­tial sources of coverage, policyholders still must remain ever-vigilant and consider in­surance options specifically tailored to li­abilities arising from their use of mobile apps and social media platforms. Because such coverage is far from standardized, and full of potential pitfalls, tapping the exper­tise of a good broker or outside counsel is advisable. In particular, policyholders and their advisers need to carefully vet current and future policies to ensure they do not contain exclusions that might limit cover­age in the event of a claim.

ENDNOTES

1 Jordan Golson, Apple's App Store Now Has Over 2 Million Apps, The Verge (Jun. 13, 2016), https://www. theverge.com/2016/6/13/11922926/apple-apps-2- million-wwdc-2016

eMarketer Report, US Time Spent With Media: Emarketer's Updated Estimates And Forecast For 2014–2019, eMarketer (Apr. 27, 2017), https://www.emarketer. com/Report/US-Time-Spent-with-Media-eMarketers- Updated-Estimates-Forecast-20142019/2002021

3 Id.

Jefferson Graham, This Is How Much We Spent On Apps Last Year, USA Today (Jan. 17, 2017), https://www. usatoday.com/story/tech/talkingtech/2017/01/17/ how-many-hours-did-you-spend-apps-2016/96676372/

Jason Mander, Daily Time Spent On Social Media Networks Rises To Over Two Hours, globalwebindex Blog (May 16, 2017), http://blog.globalwebindex.net/chart-of-the-day/daily-time-spent-on-social-networks/

6 David Cohen, How Much Time Will the Average Person Spend on Social Media During Their Life?, AdWeek (Mar. 22, 2017), http://blog.globalwebindex.net/chart-of-the-day/daily-time-spent-on-social-networks/http://www.  (Mar. 22, 2017), http://blog.globalwebindex.net/chart-of-the-day/daily-time-spent-on-social-networks/http://www. adweek.com/digital/mediakix-time-spent-social-media-infographic/

Evan Asano, How Much Time Do People Spend on Social Media?, Social Media Today (Jan. 4, 2017), http://www. socialmediatoday.com/marketing/how-much-time-do-people-spend-social-media-infographic

8 Id.

Stacy Collet, Five New Threats To Your Mobile Security, CSO (Aug. 1, 2017), https://www.csoonline.com/ article/2157785/data-protection/CSO (Aug. 1, 2017), https://www.csoonline.com/ article/2157785/data-protection/five-new-threats-to-your-mobile-security.html#CSO (Aug. 1, 2017), https://www.csoonline.com/ article/2157785/data-protection/five-new-threats-to-your-mobile-security.html#tk.rss_all

10  Jeff Goldman, Can Cyber Insurance Keep Up? Cloud Cyber Attack Could Cost $121 Billion, eSecurity Planer (Jul. 28, 2017), http://www.esecurityplanet.com/ threats/ Planer (Jul. 28, 2017), http://www.esecurityplanet.com/ threats/can-cyber-insurance-keep-up-cloud-cyber-attack-could-cost-121-billion.html

11 Sean Cooney, Untangling The Mystery of Cybersecurity Insurance, Inside Counsel (Mar. 1, 2017), http://www. insidecounsel.com/2017/03/01/untangling-the-mystery-of-cybersecurity-insurance

12 Allianz Global Corporate & Specialty, D&O Liabilities Are Becoming More Complex Around the Globe: Allianz Report, Carrier Management (Dec. 2, 2016), http://www.carriermanagement.com/ news/2016/12/02/Carrier Management (Dec. 2, 2016), http://www.carriermanagement.com/ news/2016/12/02/161679.htm

13  Taylor Armerding, Cyber Insurance: Worth It, But Beware Of The Exclusions, CSO (Oct. 20, 2014), https:// www.csoonline.com/article/2835274/cyber-attacks-espionage/cyber-insurance-worth-it-but-beware-of-the-exclusions.html


Cort T. Malone is a shareholder in Anderson Kill's Insurance Recovery Group, practicing in the firm's New York office. An experienced litigator, Mr. Malone handles coverage disputes involving commercial general liability insurance, directors and officers insurance, employment practices liability insurance, advertising injury insurance, and property insurance.
(212) 278-1382 | cmalone@andersonkill.com

Jorge R. Aviles is an attorney in Anderson Kill's New York office, where he concentrates his practice in corporate and commercial litigation and insurance recovery, exclusively on behalf of policyholders.
(212) 278-1180 | javiles@andersonkill.com


Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estates, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Philadelphia, PA, Stamford, CT, Washington, DC, Newark, NJ and Los Angeles, CA.

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