Defamation Insurance Coverage Explained

Defamation insurance coverage exists to protect businesses from a lawsuit after an incidence of defamation, whether it was intentional or not. Here, we’ll discuss what defamation is — including terms like slander and libel — and how this important insurance coverage protects businesses in instances of misguided advertising or communications.

Please note that the information we present here is meant to be unbiased, educational and entertaining. We are not attempting to offer legal advice, but to explain defamation insurance coverage to business owners.

What is Defamation?

Per the International Risk Management Institute (IRMI), defamation can be any written or oral communication about a person or thing that is unfavorable and untrue.

The two most common types of defamation are:

• Slander: a damaging and untrue statement that is said orally
• Libel: defamation in writing

Defamation, libel and slander laws vary slightly from one state to the next, but they’re all based on the same concepts.

Defamation is always considered a “tort” in legal terms, meaning it isn’t a physical or violent crime, but can be harmful to others. People or organizations that suffer defamation can sue the offender in civil court. If their case is strong enough a plaintiff can win many millions of dollars in damages.

Defamation insurance coverage helps to protect your business from the repercussions of defamation charges, like charges for damages and settlements, court fees and attorney fees to name a few.

Which Businesses Need Defamation Insurance Coverage?

All of them! Every type of business can benefit from defamation insurance coverage. Your organization will benefit most if:

• Your business model includes cold calls or sales reps who might accidentally defame a competitor
• As a B2C company, you advertise on mass media like cable TV
• Your company works in a highly competitive arena, like auto sales
• Or if your company has ferocious rivals in the industry who tend to be litigious (or lawsuit-happy)

Note that companies that work in media – radio, television or newspaper advertising for instance – usually need additional coverage beyond a standard commercial package insurance policy. This makes sense, as one misguided statement in a TV commercial or print ad can have devastating effects on other businesses.

Many Instances of Defamation are Accidental, but Not All

US courts give a bit of leeway to sales reps and advertising that make positive claims about their service or product. Sales-ey statements like “Our used cars are the best” or “We have the finest furniture around” are generally not considered defamatory, even though they indirectly suggest that a competitor’s furniture or cars are lower quality. (However, one risks the wrath of the FTC gods of Truth in Advertising with these sorts of claims.)

The most straightforward incidents of defamation occur when Company A makes an untrue statement about Company B, in hopes of damaging their reputation.

As with so many business insurance topics, defamation can be best illustrated with a story.

The Story of Keith, a Defamatory Sales Rep

Imagine a credit card processor salesperson named Keith. He works for A1 Processors. Keith’s job is to visit all the brick-and-mortar stores in his territory and convince them to use his employer’s credit card processors.

One day, while out on his rounds, Keith finds himself selling more units than usual. The competitor, Hope Processing, is experiencing a problem in their system. All of Hope’s processors are down, so business owners are jumping at the chance for a new service provider.

As Keith enters his fourth shop he says “Your credit card processors are down. It does not surprise me. Hope is a terrible company. They probably couldn’t pay their light bill and had to shut their doors.”

• Two days later, Keith’s supervisor receives a cease-and-desist letter for defamatory statements against Hope Processing.
• Keith receives a written warning in his employee file, and with any luck he is smart enough to stop making these kinds of statements about the competitor.

Now, let’s imagine that Keith has an axe to grind! Once upon a time, he worked for Hope and left as a disgruntled employee after they burned him on a short commission check. He continues to make negative statements about Hope Processing. “Hope’s processors are always down” he says. “That’s why I left them. A1 is always up and running.”

It isn’t long before Hope Processing slaps A1 with a defamation lawsuit. This becomes a stressful time for A1, but thankfully, they have a good commercial insurance policy, and defamation is covered by their general liability. The attorney and settlement will all be covered by insurance, up to the limits of the policy, of course.

In the end, Hope Processing accepts a $50,000 settlement for the damage to their reputation. The attorney and court fees are all paid. A1 gets back to business as usual, and Keith finds himself seeking new employment.

On Media Liability and Defamation Coverage for Bloggers and Influencers

Earlier in this piece we mentioned that media companies need more than the standard defamation coverage that’s supplied by general liability on a commercial policy. The larger the company, and the larger its audience, the more defamation coverage is needed.

However, independent copywriters and bloggers can find themselves in the occasional defamation pickle, too.

While you might consider yourself a small business, even individual bloggers, “Youtubers” and “influencers” should consider getting a quote for media liability insurance. It is a specialized form of errors & omissions (E&O) that protects media companies from liability claims brought by third policies. This sort of policy is commonly purchased by broadcasters, advertising agencies and authors, but you do not need to be CNN to benefit from E&O insurance.

Technology has changed, and one misstatement against a business can become a viral nightmare within hours.

Usually written on a claims-made basis, media liability insurance will provide coverage against defamation, copyright infringement, plagiarism, intentional torts and the like.

But regardless of your business’ operations, the best way to avoid a defamation lawsuit is to craft your advertising messages carefully and train your sales team well.