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United States v. Thomas

"Blue Note" Jazz Club

Marketing

Web Advertising     Disclosure Mandates     Virtual Markets     Privacy Issues

Web Advertising of Insurance Products

Attorney Paul M. Hummer, partner in the law firm of Saul, Ewing, Remick & Saul addresses the legal regulation of insurance on the Internet in his paper "Doing the Business of Insurance on the Internet: Regulatory and Other Legal Issues."

In "Doing the Business," supra, Hummer points out that:

"The principal characteristic of the Internet is that it knows no geographical boundaries. By contrast, regulatory and other legal issues concerning the business of insurance are divided on a state­by­state basis." Hummer points to variations in state law regarding such elements as regulation of content of ads or mail order solicitations, and state requirements that records be maintained for regulatory review, and that certain solicitations be filed with the state at the time they are first circulated to the public. Hummer predicts that advertising and solicitation via the Net will be construed and regulated as "mail order solicitations."

He suggests careful review of all state laws regarding insurance advertising, and the possible use of disclaimers in material posted on the Net regarding jurisdictions in which the product is not offered or available.

The United States Court of Appeals, in United States v. Thomas, 1996 U.S. Court of Appeals (January 29, 1996: Sixth Circuit); pointed out one hazard of offering across state lines material that may be proper where offered, but objectionable where the offer is viewed. In California, Mr. Thomas offered some "adult" material for sale over the Internet. The offer was seen, and an order placed, by a Postal Inspector in Tennessee, who then began a successful criminal prosecution of Mr. Thomas for alleged trafficking in pornography.

The United States Court of Appeals determined that the classification of the material as "pornographic" was to be measured by the community standards of the place they were viewed (Western Tennessee), not those of the place where they were posted (Northern California).

Mr. Thomas' experience has interesting relevance in the area of administrative penalties for an Internet posting that may violate a particular jurisdiction's bank, insurance or securities regulation or otherwise impose liability on the author. A single posting may result in a separate fine or tort remedies for each place, perhaps for each user, accessing the same material.

Hummer further points out:

"Insurance advertising may expose a company to violations of consumer protection statutes, potential bad faith exposure, negligent misrepresentation or binding interpretations of ambiguous policy terms. These risks, which insurers face every day, may be increased when an insurer advertises on the Internet. For example, one of the features of the Internet which makes it so attractive to insurers is the scope of its audience. This same scope, however, increases the risk of class actions against insurers for violation of consumer protection statutes."
Hummer, "Doing the Business," supra, (footnotes omitted).

But see the September 9, 1996 decision of U.S.District Court Judge Stein in Bensusan Restaurant Corp. v. King, 1996 U.S.Dist.Ct. (September 9, 1996: S.D.N.Y.), a trademark case wherein the New York "Blue Note" jazz club challenged a small Missouri club's use of its similar name in a Web page (http://www.thoughtport.com/cyberspot/) that could be viewed in New York. In his opinion, Judge Stein said that: "The mere fact that a person can gain information on the allegedly infringing product is not the equivalent of a person advertising, promoting, selling or otherwise making an effort to target its product in New York."

The law is still developing. In a recent commentary posted on the Web at Saul.com, Attorney Paul Hummer points to a decision in Arizona (Edias Software v. BASIS) in which a federal judge found that information posted by a New Mexico resident on a CompuServe service were sufficient "contacts" with the plaintiff in Arizona to support the jurisdiction of the federal court there. Mr. Hummer also points to a decision by the federal court in Connecticut (Inset Systems v. Instruction Set, Inc.) that a company purposefully and continuously directing Web advertising to Connecticut users was subject to personal jurisdiction there.

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Saul, Ewing, Remick & Saul

Securities Exchange Commission (SEC)

EDGAR

SEC Proposed Interpretation

Marketing

Disclosure Mandates

As Paul Hummer, of Saul, Ewing, Remick & Saul, points out in "Doing the Business,"

"Efforts to solicit or sell insurance on the Internet may also run afoul of state specific requirements on disclosure issues. For example, in Pennsylvania, an insurer must deliver with an application for a long­term care policy, a `Long­Term Care Insurance Shopper's Guide' in a form approved by the NAIC or the Pennsylvania Insurance Commissioner. Similarly, in connection with the sale of a variable life insurance policy, an insurer must deliver a detailed disclosure of policy features, investment policies, investment returns, tax aspects, etc. when an application is 'signed'."
Hummer, "Doing the Business," supra, (footnotes omitted)

In 1995, the Securities Exchange Commission (SEC) published a Proposed Interpretation, with its views encouraging the use of electronic media to deliver information required under various rules regarding securities. The publication included extensive and particular examples of how to comply by using electronic mail and postings on online services and Internet sites. Its promulgation anticipated the now mandatory filing of certain securities disclosures on the EDGAR system accessible free over the Net. It also contemplates the use of hypertext links to satisfy requirements that some information "accompany" other content. The full document is lengthy and detailed, and bears quoting here from the text at http://www.sec.gov/rules/proposed/33-7233.txt

"The Commission believes that, given the numerous benefits of electronic distribution of information and the fact that in many respects it may be more useful to investors than paper, its use should not be disfavored."
Ibid. at page 2.

"Use of electronic media also enhances the efficiency of the securities markets by allowing for the rapid dissemination of information to investors and financial markets in a more cost-efficient, widespread, and equitable manner than traditional paper-based methods. Recognizing the multiple benefits of electronic technology, the Commission initiated its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system * * * to automate the receipt, processing and dissemination of disclosure documents filed with the Commission * * *."
Id. at Page 2.

"The Commission believes that delivery of information through an electronic medium generally would satisfy delivery or transmission obligations under the federal securities laws."
Id. at Page 6.

"Those providing information also should take reasonable precautions to ensure the integrity and security of that information, regardless of whether it is to be delivered through electronic means or paper, so as to ensure that it is the information intended to be delivered."
Id. At Page 7.

"Sales literature, whether in paper or electronic form, is required to be preceded or accompanied by a final prospectus. The hyperlink function enables a final prospectus to be viewed directly as if it were packaged in the same envelope as the sales literature. Therefore, the final prospectus would be considered to have accompanied the sales literature."
Id. At Page 15.

This document was first online at lynxcom.com

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Intuit

Insuremarket

TurboTax

Marketing

Web Advertising     Disclosure Mandates     Virtual Markets     Privacy Issues

Virtual Insurance Markets

According to an article in the September 9, 1996 Best's Review, Property/Casualty Edition. Datamonitor, in a study entitled "Strategies for Success in U.S. Insurance" estimates that by the year 2000 Internet sales of homeowners and auto insurance in the United States will total $2.4 billion. Datamonitor's study also suggests that insurers using the Internet may realize 23 percent savings compared with agency insurers and 5.1 percent savings compared with direct marketers. See a similar story contemporaneous with the July 1996 Datamonitor report at: http://www.mci.newscorp.com/computin/news/rt_c0892.htm

One unique characteristic of the Net is its ability to create sites that attract users searching for interesting or valuable content. It demonstrates some of the same characteristics of the medieval "market town" to which buyers and sellers journeyed to find a superior market for their goods and services, and to find things unavailable near their home. In response, the market evolved its own services, regulations and traditions to meet the needs of market visitors and resident merchants, and to create the trusted and secure environment that fosters trade.

We see the same evolution occurring in the Net, and one of the prime examples is the virtual insurance marketplace under construction by Intuit at Quicken InsureMarket . Intuit (widely respected for its Quicken home finance and on-line banking products and TurboTax preparation software) describes their site to insurance consumers:

"Compare policies, purchase insurance online, and connect with agents. In the very near future, InsureMarket will be the simplest, fastest way for you to buy high­quality insurance. >From this single online source, you'll be able to compare policy offerings from a wide range of top carriers, including Lincoln Benefit Life (an Allstate company), MetLife, State Farm, TIG, Zurich Direct, and many others to come ­ as well as their superior agency networks. You'll also be able to get advice and purchase your insurance policies, right online."
http://www.insuremarket.com

While introducing InsureMarket, Intuit's subsidiary Interactive Insurance Services, Inc. also announced its availability and intent to contract with insurers and agents to provide other services, including Website authoring, lead generation and developing software for online insurance sales and service. The characteristics of the Web offer dramatic cost savings to those using its tools, particularly in personal lines of insurance amenable to template underwriting, direct issuance and debit/credit card payment. As services like Insuremarket.com move closer to the traditional realm of the insurance agent, questions will arise about standards and state agency licensure.

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Netscape

Microsoft

FTC Privacy Workshop Report & Transcripts

Privacy Rights Clearinghouse

Project OPEN

Marketing

Privacy Issues Unique to the Web

Those interested in marketing to users of the Web enjoy certain opportunities not found in other fields, including the ability to track the prior "travels in cyberspace" of visitors to their sites. This is done through the medium of "cookies," a feature of the popular Netscape Navigator program (and probably of other popular browsers, such as Microsoft's Internet Explorerunder different names). The cookie.txt file created and maintained in the user's computer records information about the Net "sites" viewed by the user. Net sites can be programmed to read a viewer's "cookie" as she arrives, enabling the Net site to customize the viewer's individual experience at that site. "Cookies" assist an online marketer, enabling it to "recognize" a customer and anticipate her preferences and characteristics, eliminating the need for reentry of repetitive information, and allowing the host to speed and customize the visitor's experience. The information gained from a user's cookie file may also be of value to third parties, and the operator of a Web site may find a market for resale of information gained by examining users' cookies as well as new information gathered during their visit.

Improper use of information gathered during a consumer's Web experience may conflict with some users' expectation of privacy, if the information is sold, or with the user's rights, if reference to the information is used as a basis to withhold information from the visitor about certain products ("Weblining"??), or as a basis for "demarketing." These issues are complicated if the operator of the site made no disclosure of its intentions to gather or to reuse such information, and did not obtain consent for such use. Efforts are under way to adopt voluntary guidelines for site operators to disclose to viewers their use of "cookies."

In a staff report issued in December, 1996, "Public Workshop on Consumer Privacy on the Global Information Infrastructure," the Federal Trade Commission summarized and discussed the views of participants expressed in a June 1996 workshop. The Workship and Report were designed as a resource for those developing policies and mechanisms for protecting consumer privacy online. The December report and the transcripts of two days of testimony are available in full at http://www.ftc.gov/bcp/privacy/privacy.htm

Among the recommendations were those of panelists who urged special focus upon education of the elderly and children as to the special privacy issues presented by the Internet and users' revelation of personal information online where it may be intercepted by third parties or resold by the intended recipients. The study contains many useful references for those exploring issues of privacy in electronic commerce, including the Privacy Rights Clearinghouse at http://www.privacyrights.org/ and Project OPEN (Online Public Education Network) at http://www.isa.net/project-open.

Also available from the FTC is a staff report on "Anticipating the 21st Century: Competition and Consumer Protection Policy in the New High­Tech Global Marketplace," summarizing public hearings on global and innovation competition held from October to December 1995. The report is in two volumes, one focusing on competition, the other on consumer protection, both accessible at http://www.ftc.gov/ftc/newstuff.htm. The second addresses issues of consumer privacy, as well as those of consumer fraud and the proper role of government and law enforcement.

The issue is also the subject of federal legislation proposed by Rep. Markey, H.R.3685, (introduced 06/20/96) "A bill to require the Federal Trade Commission and the Federal Communications Commission to take action, as necessary, to protect consumer privacy in light of the convergence of communications technologies," available at: http://fish.ljx.com/pubs/paper21.html

See also: Johnson, "Technological Surveillance in the Workplace: Monitoring E-Mail, Computer Files, Voice Mail and Telephone Use Without Crossing the Privacy Line." at: http://www.fwlaw.com/techsurv.html

Net Nuggets
(links and informal notes about Life, Law and the Net)
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