A landmark defamation case has sent shock waves through the blogging world. Laura Bainbridge and Anna Bateman explain why professional indemnity and directors' and officers' insurers may see an increase in claims
In March, the first libel case involving blogging reached the UK High Court. A settlement was reached in the high-profile action brought by the head of the global advertising giant WPP, Sir Martin Sorrell, against the former manager of WPP Italy, Marco Benatti, the French and Italian companies of the media group Fullsix and the Fullsix chief executive officer, Marco Tinelli.
It had been alleged that the defendants published defamatory internet blogs about "Don Martino", and disseminated by e-mail an "offensive" jpeg image that was said to be an invasion of privacy. The claims turned upon whether there was evidence to prove that Mr Benatti and Mr Tinelli, or someone within Fullsix, were responsible for the publication of the offending blogs and images.
Despite being personal in nature, the claims were also issued against the Italian and French companies of Fullsix, of which Mr Benatti and Mr Tinelli were directors. It was alleged that the computers of either, or both, companies had been used to disseminate the e-mails - and, inferentially, the same person must have been responsible for the blog.
While the claim was settled with no admission of liability, and with a formal acknowledgment from Sir Martin that he was not pursuing his complaint that Mr Benatti and Mr Tinelli were personally liable, this was the first libel case involving a blog to progress to trial. The presence of the Fullsix companies as defendants also raised the question of whether a corporate defendant faced with a libellous blog created by one of its employees or directors might itself be liable, and what insurance covers might respond.
For a company to be vicariously liable for an employee's activities, the employee must have been acting in the course of their employment. Since an employer is responsible not only for acts they authorise but also for other acts connected to the authorised acts - so they might be regarded as modes of carrying out the authorised acts - a close analysis of the connection between the nature of the employment and the employee's wrongful acts will be required.
Use of an employer's time, workplace or tools, such as a work computer, access to the internet or a work e-mail address, for an employee's own personal purposes does not, of itself, give rise to vicarious liability, and acts of passion, resentment or personal spite may also fall outside the scope of employment.
Recent decisions suggest an employer can introduce the risk of the employee's misconduct because it is closely connected to the employment - the onus may be on the employer to manage and minimise that risk. In the context of the misuse of computer systems, a company might argue that, with the internet and e-mail in use for personal as well as commercial purposes, the risk of online publication being abused surreptitiously, anonymously and unlawfully cannot be said to be a particular incident or risk of the business for which it should be vicariously liable.
In any event, companies need to ensure they have internal controls to minimise the risk of libellous e-mailing and blogging, and that these are drawn to the attention of employees.
However, if vicarious liability for libellous the blogging activities of an employee is established, the company will look to its professional indemnity insurance. Media companies may have bespoke indemnity policies focusing on risks that are more frequently associated with their business, but an indemnity for defamation liability is standard in most PI policies.
A PI policy should cover a company for libellous blogging by an employee provided the company establishes that the claim arose "out of the conduct of its business". Determining this issue is likely to involve considerations similar to those at play in establishing the vicarious liability in the first place.
However, the indemnity for defamation-related liabilities might be caveated by the requirement that the libel be committed in good faith. Alternatively, the policy might exclude liability for malicious or deliberate acts, or for any claim arising from personal spite or ill-will towards the third-party claimant. In such cases, the nature of, and motivation behind, the libel should be taken into account.
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If a director or senior manager commits a libellous act, their acts may be attributed to the company directly - as distinct from the company being vicariously liable for an employee's acts. The doctrine attributes to the company the mind and will of the persons who direct and manage its actions. Determination of this issue will require an analysis of whether the individual's position within the company, and the connection between their libellous act and the business of the company, might render these acts the acts of the company.
Where a director of a company has committed a libellous act, their personal liability may fall under the company's directors' and officers' policy as a "wrongful act". A wrongful act is usually defined in broad terms to encompass acts, errors or omissions committed in the capacity as director of the company, and some policies refer expressly to libel within the definition. However, the availability of cover may depend on a connection between the director's role and their wrongful act.
While exclusions relating to serious wrongdoings such as fraud and dishonesty may not apply to an act of libel, D&O policies will generally exclude liability that is, or should be, covered under other insurance, such as a company's PI policy. Therefore, it is advisable the provisions of both the company's PI and D&O policies are considered.
The allegations at play in Sir Martin's claim raise interesting issues for insurers, as well as defamation and privacy practitioners. The rise in the use of the internet - blogs in particular - where informal communication may have unintended defamatory consequences, raises the prospect of increased claims for PI and D&O insurers.
Sir Martin's claim also highlights the costs implications for parties involved in litigation requiring extensive electronic disclosure and detailed forensic analysis of computers and servers. PI and D&O insurers, and potential litigants considering after-the-event insurance or other litigation funding mechanisms, should take note.
Laura Bainbridge and Anna Bateman are associates at Herbert Smith.
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