1. BLG E-COMMERCE RISKS: RISK MANAGEMENT IN PROFESSIONAL INDEMNITY KIT BURDEN PARTNER, BARLOW LYDE & GILBERT KIT BURDEN PARTNER, BARLOW LYDE & GILBERT

2. BLG WELL, YOU WOULD SAY THAT WOULDN’T YOU…

3. BLG ACTUAL CLAIMS AND LIABILITIES;  Virgin  Argos  IBM  Demon Internet  British Gas  Norwich Union  YAHOO  Virgin  Argos  IBM  Demon Internet  British Gas  Norwich Union  YAHOO

4. BLG 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  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

5. BLG 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  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

6. BLG DATA RISKS  Key importance of data  Data Protection Act 1998 – the 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  Key importance of data  Data Protection Act 1998 – the 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

7. BLG 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  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

8. BLG HOW DOES THIS IMPACT P.I. INSURERS? E-commerce risks affect:  E-commerce service providers (ISP’s, hosts, website designers)  Management and IT consultants  Professional advisors (lawyers, bankers, auditors)  Directors and Officers E-commerce risks affect:  E-commerce service providers (ISP’s, hosts, website designers)  Management and IT consultants  Professional advisors (lawyers, bankers, auditors)  Directors and Officers

9. BLG 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 as Trusted Third Parties  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 as Trusted Third Parties

10. BLG 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 underpinning new 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”  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 underpinning new 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”

11. BLG PROFESSIONAL ADVISORS  All professional advisors need to be aware of the challenge which the web poses in order to provide proper advice  Lawyers – need to be aware of risks posed by multi-jurisdictional nature of the internet and widening body of potential laws and regulations  Bankers – need to take care in way in which they provide advice to dot.com and other e-commerce clients regarding their finance requirements  Auditors – at risk in relation to audits of dot.com and “new” valuation techniques (e.g. Amazon, e-district)  Brokers - need to be aware of what the risks are, so as to advice insureds about the scope of cover offered by their current portfolio and their potential future requirements  All professional advisors need to be aware of the challenge which the web poses in order to provide proper advice  Lawyers – need to be aware of risks posed by multi-jurisdictional nature of the internet and widening body of potential laws and regulations  Bankers – need to take care in way in which they provide advice to dot.com and other e-commerce clients regarding their finance requirements  Auditors – at risk in relation to audits of dot.com and “new” valuation techniques (e.g. Amazon, e-district)  Brokers - need to be aware of what the risks are, so as to advice insureds about the scope of cover offered by their current portfolio and their potential future requirements

12. BLG 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.214 Insolvency Act 1986  Position of internet incubators?  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.214 Insolvency Act 1986  Position of internet incubators?

13. BLG 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  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

14. BLG THANK YOU