On July 27, 2010, a Federal Judge sitting in the Southern District of New York ruled that a search engine could sue for gross negligence against its Internet service provider, even though the search engine had signed a waiver of liability. In Baidu, Inc. v. Register.com, 10 Civ 444 (SDNY 2010), the Court was presented with a case in which a company that operates one of the world’s largest search engines, Baidu, Inc., was shut down for a number of hours by hackers from the “Iranian Cyber Army.” Once the hackers penetrated the website’s security protocols, they posted an Iranian flag and a broken Star of David.
As reported in the New York Law Journal, Volume 224, No. 10 (2010), the parties admitted that the ISP agreement had clearly stated that Baidu, Inc. was proceeding at its own risk and would provide its own security. However, the hacker was able to penetrate by emailing Register.com that it had lost its password. It provided a new password, notwithstanding the fact that the hacker was unable to answer the security questions.
The Court held that the gross negligence by Register.com was either intentional wrongdoing or at the very least, “reckless disregard for the rights of others.” On that basis the Court allowed the case to proceed on the claims of gross negligence and breach of contract.
On June 15, 2010, a Federal Court in Pennsylvania considered whether an insurance policy for professional negligence will cover a related claim for defamation. In Post v. St. Paul Travelers Ins. Co., __F.Supp.2d__, 2010 WL 2490750 (E.D.Pa.), the Court held it would not.
In that matter, the insurance company that issued the professional negligence policy, St. Paul, argued that there was no basis for awarding attorneys’ fees for legal work performed in defending a defamation action against the insured. While it admitted that the claim against its insured for professional negligence was covered, the claim for defamation was not because “the general rule is that related matters pled in the same action are generally covered, while matters that are separate from the original action are not covered.”
The Court agreed, holding that one has to show that the two lawsuits were “inextricably intertwined” which “is a higher standard to meet. To meet the standard, the two actions should be so related that it is difficult to separate the work completed for each, or to argue that the work done on the collateral litigation was not necessary to the defense of the litigation as a whole. …” The defamation action “was too separate and distinct to be considered inextricably intertwined with” the professional negligence action.