Defamation Liability

Online Defamation Liability

The proliferation of communication channels greatly increases the risk for a defamation action.
By: | April 4, 2018 • 9 min read

The internet and social media multiply the opportunities for companies to reach out to make inroads in new markets. They also increase the risk of facing expensive defamation liability charges.

“Companies are trying to reach customers, business partners and others in the marketplace with all kinds of different online channels,” said Tom Clare, a partner at the Clare Lock law office in Virginia.

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“But what it means is that there is a lot more content online and a lot more opportunities to say something that will put them on the wrong side of a defamation risk.”

The potential for damages should not be underestimated; according to Clare, damages awarded for reputational harm and economic losses caused to third parties can reach tens of millions of dollars.

Notably, the most emblematic cases have been related to media organizations. For instance, Rolling Stone magazine settled a case last year pursued by Nicole Eramo, a former associate dean of the University of Virginia. The magazine published an article accusing Eramo of mismanaging a gang rape case. She sued for defamation and was awarded $3 million as damages after the court found the allegations were untrue. The magazine also agreed to pay $1.65 million to the fraternity accused of rape in the article, which was found to be misleading.

In another well-publicized case, beef processor BPI sought $1.9 billion in damages from ABC News, claiming that an incorrect report published by the media firm had led to the closing of several producing plants. The two parties agreed to settle the case, and the damages agreed to were not disclosed.

Social Media and Third Parties

Media companies are not the only ones at risk.

Any organization that makes extensive use of its Twitter, Facebook, YouTube or Snapchat accounts is exposed to similar charges. Especially because, for many executives, social media accounts remain a marginal priority and one side of the business that can be delegated to young and low-paid millennials or unknown start-ups that charge reduced fees.

“With the advent of the internet and the very rapid expansion of online companies, you see an exposure for non-media companies that is growing as well, separate from the traditional exposure that you would expect from media companies,” said Jeanmarie Giordano, global head of professional liability, AIG.

Emily Selck, cyber liability practice leader, Hub International Midwest Limited’s Management and Professional Liability Group

“The rapid emergence of social media has brought about a new risk that causes the leadership of many of my clients to feel overwhelmed,” said Emily Selck, cyber liability practice leader, Hub International Midwest Limited’s Management and Professional Liability Group.

“Many have multiple websites of their own, along with Facebook, Twitter and LinkedIn; or they may have a presence on consumer review sites like Yelp. They are aware of their presence as it relates to social media, but since many outsource these particular marketing activities to a third party, they may not know the extent of their presence or who specifically is in control.”

Companies get in trouble even if low-level staff members or a supplier managing their social media accounts make a disparaging comment about a rival. Selck noted that seemingly trivial mistakes, such as failing to get approval of photos and captions posted on social media after a company event, can also result in media liability exposures.

In the same light, overeager staff members can publish YouTube videos with false allegations about a rival or change photos with the help of image manipulation software to harm the reputation of a competitor. Clare recalled an episode where a company published photos of a structure built by a competitor while still uncompleted, suggesting it showed sloppy service provided by the competitor.

“There have been cases where cross-town rivals create fake Yelp accounts to post negative reviews of a competitor,” said Aaron Minc, an expert in online defamation law in Cleveland, OH.

“Companies are using the emails to customer lists, blog posts or other online tools to win business and to say things about their competitors,” Clare added. “It is something that predates the internet era, but an email, tweet or blog post can be forwarded very quickly, reaching a much bigger audience and creating a much greater chance that there will be defamation liability.”

Watch What You Say

Clare explained that simply comparing products does not create the grounds for a defamation charge, but stating false facts about a product made by a rival surely does.

And, if the author of the comment used a channel authorized by the company to disparage a rival, it matters little whether the company’s leadership was aware of the initiative or not.

“If a low-level employee is acting within the scope of his employment and publishing online is part of his duties, or if he is authorized by the company to be on a social media platform, then the company can be liable to his comments online,” Clare said.

“This is a very significant development in courts right now. A lot of times, people will mix their business social media use with their personal social media comments.”

The mere fact that a staff member is identified in a social platform as an employee of the firm has the potential to cause problems for a company, as users may associate the comments with the company cited in the user’s profile. The exponential growth of social media, in fact, is creating ever new exposures companies sometimes struggle to spot and deal with.

“Ultimately, the best risk management against defamation is close oversight by external counsel of what is being posted with a rigorous internal approval process.” — Emily Selck, cyber liability practice leader, Hub International Midwest Limited’s Management and Professional Liability Group

“The lack of oversight is the biggest concern I have for my clients,” Selck said.

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“I have had clients who have had to engage in counsel because of a feud between two employees. Others have caused emotional distress due to inappropriate images.”

“When we underwrite coverage to media, we ask a lot of questions about the controls they have in place, who reviews the material, who is authorized to speak and training of employees around content,” AIG’s Giordano said.

Jason McDonald, a media liability underwriter for the Philadelphia Insurance Companies, noted that simply covering defamation liability in your employee handbook is not enough.

“Real training regarding that type of activity really only goes so far in a lot of places,” McDonald said.

Due to employee turnover, Giordano said the training should be ongoing and recurrent.

“I think it is really important that it is not a one-and-done training,” Giordano said. “Large companies have a tremendous amount of turnover; you want to make sure you are getting to everybody regularly.”

David Greene, civil liberties director, Electronic Frontier Foundation, noted that online defamation liability is nothing new, as it was an issue even before the popularization of the world wide web, when business people used virtual channels to meet in investment forums and other such activities.

And keep in mind this one fact: Regardless of whether information is being published online or in print, truth is a strong defense.

“At the root of most defamation issues is ‘Was the statement or statements made false?’ ” said McDonald. “As long as you can confirm that you are telling the truth and are not doing it in a negligent way, you really shouldn’t have issues.”

But the spreading of social media takes defamation risk several notches up, as it increases the possibility a false statement will be read and cause harm. As with traditional defamation risk, it is necessary that only one person reads the statement to justify a charge, Greene remarked.

Social media also multiplies the potential for monetary losses. When reputational damages are calculated, the extent to which a statement has spread around the internet will be a key factor when the losses incurred by the plaintiff are estimated.

Therefore, taking a false statement out of circulation as soon as possible constitutes a useful step to take when a company notices a social media posting has crossed the line. Publishing a retraction in the same media employed to make the wrongful statement is also recommended, Clare noted, as it can be taken into account by the judge and result in lower damages.

Retracting and Reducing Risk

If the false statement was made via Twitter, retracting on Twitter is recommended. If a video with defamation liability potential was published on YouTube, another video with a retraction would be necessary. But even acting quickly may be not enough, as the defamatory statement could have already spread beyond the company’s social media structure and may be stored in computer caches for years.

The best solution, according to the experts, is to act preventativly. Clare recommended companies have a very clear social media policy that states when and by which channels employees are expressing views on its behalf. Introducing layers of oversight that avoid the kind of hot-headed use of Twitter or Facebook that can create exposures is also a recommended measure, even though it may imply reacting with less urgency to the issues that bring the internet down in a particular moment.

“Ultimately, the best risk management against defamation is close oversight by external counsel of what is being posted with a rigorous internal approval process,” Selck said. “Multiple levels of approval often mitigate bad judgment and allow for some consistency in messaging.”

A number of insurance policies are also available to protect companies against the risk of online defamation. They are traditionally purchased by media companies to protect themselves in their daily grind, but as other kinds of organizations also become ever more embroiled in the publication of stuff online, it may be worth it to take a look at specific coverages.

“At the root of most defamation issues is ‘Was the statement or statements made false?’ ” — Jason McDonald, media liability underwriter, Philadelphia Insurance Companies

“Media liability policies are the most effective backstop in the event of an allegation of defamation,” Selck said. “These policies are available on a standalone basis if a company’s operations so dictate, as they serve as professional liability policies for media and entertainment companies.

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“For most companies, it is available bundled into a comprehensive cyber liability policy. A general liability policy may also respond, dependent upon the allegations, but the proliferation of social media has caused companies to reconsider relying on general liability alone and prefer a broader, more specialized product,” she said.

Experts have also noted that defamation is a risk often excluded from general liability policies, thus driving the need for some type of defamation liability coverage.

“We have a few of those insureds coming over and saying, ‘We are seeing some gaps in our coverage from that standpoint. We don’t have the foundation in coverage that we thought we did,’ ” said McDonald. &

With additional reporting by Dan Reynolds, the editor-in-chief of Risk & Insurance.

Rodrigo Amaral is a freelance writer specializing in Latin American and European risk management and insurance markets. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]