8.2.3.1 "Physical Damage" to "Tangible Property"

• Jurisdiction: Arizona

The ISO revised the CGL form in 2001,^[198] retaining coverage for "personal and advertising injury" and adding specific Internet activities to the definition of "advertisement" as follows: "material placed on the Internet or on similar electronic means of communication; and regarding websites, only that part of a website that is about your goods, products or services for the purposes of attracting customers or supporters."

With Internet use exploding and e-commerce becoming a reality for virtually all companies, cyberspace^[199] perils pose significant litigation exposure. Cyberspace risks arise from claims for defamation, invasion of privacy, and related torts^[200] and from intellectual property ("IP") claims, including copyright, trademark, trade secret, and patent infringement. Other less common risks include the following: computer crimes and breach of security; indecency and obscenity; advertising errors; programming and design errors; harassment and discrimination; contractual liability; and legal and regulatory uncertainty.

"Third party" e-commerce risks usefully can be grouped into two general categories, media risks and system risks. "Media risks" are those risks that arise primarily from website content sponsored by a company. These risks include defamation or trade libel (resulting either from materials knowingly published by the company or maliciously inserted by hackers), invasions of the right of privacy (including theft of consumer data, misuse of private customer information, false-light publication, and use of the name or image of another without permission), infringements of trademark, copyright, trade dress, trade secrets or other intellectual property (including possibly patent infringement), and other types of improper competition, including violations of unfair-trade-practices or consumer-protection statutes, antitrust violations, and restraints of trade. "System risks" are those risks that arise simply because of the fact that e-commerce takes place on a connected computer network. These risks include damage to the hardware or data of third parties as a result of malicious codes placed into the company's computer system by hackers or through viruses and liability for losses to third parties caused by their inability to access the company's computer system due to a hardware or software failure or DDoS attack.

CGL policies do not provide coverage for electronically stored data because electronic data do not constitute tangible property.^[201] CGL policies were not designed to address Internet risks and may respond poorly in that context.

Internet activity frequently gives rise to invasion-of-privacy claims.^[202] Both the 1976 and 1986 ISO policy forms provide express coverage for invasion-of-privacy offenses.^[203] For example, a competitor recently sued a Florida corporation for invasion of privacy because it had placed negative information about the competitor on its website.^[204] The court nevertheless ruled in favor of the defendant, concluding that maintenance of a passive website...