Social media is creating new forms of insurable risk, but because it is instantaneous and borderless, insurers are unsure where the threat lies, a legal expert warns.

“This is going to create very significant problems, not only for lawyers but also for insurers,” NSW District Court judge Judith Gibson told the Australian Professional Indemnity Group conference in Sydney last week.

She says two of the most common problems are damage to business reputation and employee misuse of social media.

“The potential for business losses arising from use or misuse of social media is enormous.”

Developing a staff social media usage policy is an essential step “before we can work out how to ascertain what the insurable risks are”.

Logistics company Linfox lost an unfair dismissal case last year after an employee was sacked for posting “unkind remarks” on Facebook about superiors.

It reinstated truck driver Glen Stutsel after Fair Work Australia and the Federal Court ruled there was no company policy warning against the use of social media to criticise the business.

Justice Gibson warns that unless proper procedures are in place, dismissing an employee for such conduct may be ruled harsh, unjust or unreasonable.

In carrying out due diligence on potential risks, insurance companies should include social media and possible data leaks from interconnected mobile office devices.

While some companies make maximum use of social media, others have no social media practices or policies, let alone insurance, she says.

Only 36% of small businesses and 48% of medium-sized ones have a social media presence.

Company policy should dictate when social media use is corporate and when it is personal, and staff and in-house legal teams should be educated about social media.

The risks must be kept in context, Justice Gibson says. A tweet or Facebook post cannot have the same impact or audience as a damaging front-page report in a major city newspaper.

But in Australia’s first Twitter defamation trial last year, a NSW music teacher was awarded $85,000 general damages and $20,000 aggravated damages, even though the tweeter, a high school student, had only 69 followers.

“Social media is having a tremendous impact on every area of the law,” Justice Gibson said.