The Intriguing World Of Insurance Billing: Unraveling Trade Secret Mysteries

Trade secret insurance is a relatively new concept in the insurance market. It covers trade secret assets (TSA) in a similar way to how more traditional, tangible assets are insured. Trade secrets are protected by both state and federal law. In general, a trade secret is anything that derives economic value from not being generally known or readily accessible. The owner must take reasonable measures to maintain its secrecy. While trade secret insurance is a valuable tool to protect intellectual property, it is not always easy to prove that a trade secret has been misappropriated.

Trade secret insurance coverage

Crown Jewel® Insurance, founded in 2021, is an example of an insurer that offers trade secret insurance. Their policies offer agreed value, first-party coverage of up to $50 million against the risks of theft, disclosure, or misappropriation of trade secrets.

There are two main sources of potential coverage for trade secret misappropriation claims:

• "Advertising injury" coverage provided in most Commercial General Liability (CGL) policies
• Provisions offered in most private-company Directors and Officers (D&O) policies

CGL policies often cover "personal and advertising injury", which includes libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas. However, revisions to standard forms, particularly in 2001, narrowed the scope of potential coverage, sometimes limiting it to the copying of an "advertising idea" and excluding non-advertising "trade secrets".

Private-company D&O policies often cover a broad range of claims against the company itself for "wrongful acts", which includes a wide range of errors and omissions. While these policies often exclude "trade secrets" claims, the insurer may have an obligation to defend if the complaint includes allegations of misappropriation of confidential information or computer fraud.

Overall, while coverage for trade secret claims may be challenging to obtain, it is worth reviewing insurance policies and allegations carefully to determine potential coverage.

Litigation and insurance

Trade secret coverage has been a challenge from the beginning because the act of distribution, while implying advertising, is often not the focus of allegations in the complaint. Evidence of how the marketing activity of an alleged infringer caused harm to the trade secret owner is often only revealed during the discovery process. Therefore, it is crucial to assess what has been discovered during this process when arguing that factual allegations of distribution trigger a defence.

The addition of the trade secret exclusion by ISO in 2001 has made the process even more difficult. However, there are two primary sources of potential coverage for claims of trade secret misappropriation: "advertising injury" coverage in most Commercial General Liability (CGL) policies and provisions in most Directors and Officers (D&O) policies.

CGL Coverage

Many CGL policies cover "personal and advertising injury", defined to include libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas. Earlier standard forms provided relatively broad coverage for claims relating to trade secrets. However, revisions to the standard forms, particularly the 2001 revisions, narrowed the scope of potential coverage, in some cases limiting it to the copying of an "advertising idea" and excluding non-advertising "trade secrets". But some coverage may still be available if the complaint alleges violations of copyright relating to advertising or other claims such as breach of an implied contract relating to advertising ideas.

Directors and Officers Coverage

Private-company D&O policies frequently cover a broad range of claims against the company itself for "wrongful acts", which includes a wide range of errors and omissions. While these policies often exclude "trade secrets" claims per se, the insurer may at least have an obligation to defend if the complaint is not limited to trade secrets—for example, if the suit alleges misappropriation of information that is merely "confidential", or alleges computer fraud.

Litigation Risk Insurance

Litigation risk insurance is a tool that allows counsel to provide certain assurances to their client that an adverse litigation outcome will not impact the client monetarily or will only affect them to a certain extent. This type of insurance typically takes two forms: defence-side adverse judgment insurance and plaintiff-side judgment preservation insurance.

Adverse judgment insurance protects defendants in pending litigation or potential future litigation against the risk of a significant or catastrophic adverse judgment. For example, a company being sued for $100 million in damages can purchase $90 million in "limits" (the amount of insurance coverage) above a $10 million "retention" (the policy's deductible). If the company ultimately loses the case and is ordered to pay $100 million, the insurers will pay out $90 million, leaving the company responsible for the $10 million retention.

Judgment preservation insurance, on the other hand, protects plaintiffs who have won significant lower court judgments against the risk of reversal or damage award reduction in post-trial motion practice or on appeal. For example, if a company insures a $100 million judgment with a judgment preservation insurance policy providing $90 million in limits with a $10 million retention, and then a final, non-appealable order is issued eliminating the full damage award, the insurers will pay out $90 million.

Liability Insurance

Also known as "litigation insurance", liability insurance policies are designed to protect a business from the full costs of defending claims against the business, its executives, or its employees. This defence coverage is an important part of the insurance contract.

Customer information protection

Trade secrets are protected by both state and federal law. They include financial and business data, such as formulas, methods, processes, and programs. In the context of insurance, trade secrets can include customer information, supply-chain strategies, and marketing plans. As such, insurance companies must comply with strict data protection requirements to safeguard their customers' sensitive data.

• Compliance with Data Protection Laws: Insurance providers must adhere to relevant data protection laws, such as the General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Personal Information Protection and Electronic Documents Act (PIPEDA). These laws outline requirements for collecting, storing, and processing personal information.
• Secure Data Storage and Access: Implement robust security measures to protect customer data, including encryption, multi-factor authentication, and password management solutions. Control access to critical assets by following principles like zero trust or least privilege.
• Risk Assessment and Monitoring: Conduct regular risk assessments to identify vulnerabilities and potential threats to customer data. Continuously monitor user activity to detect abnormal behavior and prevent data breaches.
• Incident Response Planning: Develop a comprehensive incident response plan to mitigate the impact of data breaches. This plan should outline the steps to take, stakeholders to notify, and time frames for response and notification.
• Third-Party Vendor Management: Monitor and audit third-party vendors and service providers who have access to customer data. Ensure they adhere to security standards and best practices to minimize the risk of data breaches.
• Data Encryption: Use encryption to protect sensitive customer data, both at rest and in transit. This adds an extra layer of security and helps prevent unauthorized access.
• Data Minimization and Retention Policies: Collect only the necessary data required for providing insurance services and retain it for only as long as needed. Minimize the amount of sensitive data stored to reduce the potential impact of a data breach.
• Training and Awareness: Provide regular training and awareness programs for employees to educate them about data protection, security threats, and their role in safeguarding customer information.
• Data Breach Response and Notification: Establish a robust data breach response plan, including steps to contain the breach, notify affected customers, and provide support. Adhere to any applicable breach notification laws and regulations.
• Collaboration with Stakeholders: Collaborate with industry peers, data protection authorities, and cybersecurity experts to stay updated on emerging threats, best practices, and regulatory changes related to customer data protection.

By implementing these measures, insurance companies can effectively protect their customers' information, maintain trust, and comply with relevant legal and regulatory requirements.

Insurance company income protection

Income protection insurance is a type of insurance that covers a percentage of your lost income if you are unable to work due to injury, illness, or disability. This type of insurance is designed to help you cover your living expenses, such as bills and loan repayments, if your income is affected by a prolonged illness or injury.

Income protection insurance provides financial support if you experience a temporary reduction in your usual pay due to injury or illness. Depending on your policy, there is usually a "waiting period" during which you must be off work before the payments start. The "benefit period" is the maximum length of time that you may receive monthly payments from your insurer if you are sick or injured and unable to work.

Types of income protection insurance policies

There are two types of income protection insurance policies:

• Indemnity-value policy: This type of policy provides cover for up to an agreed percentage of the policyholder's salary, which may change over time.
• Agreed-value policy: This type of policy provides cover for up to an agreed-upon amount of money decided when taking out the policy. However, as of March 31, 2020, insurers can no longer offer agreed-value policies to new customers.

Income protection insurance covers you if you are unable to work at the same level as before due to injury, illness, or disability. This type of insurance typically applies to temporary ailments or situations where you are expected to recover and return to work.

There may be some exclusions to income protection insurance coverage. For example, some insurers' policies may not cover illnesses or injuries that are minor enough for the claimant to work, or those resulting from war, civil unrest, or service in the armed forces.

Income protection insurance can provide peace of mind and financial security if you or your loved ones depend on your income to pay regular expenses. It can help cover bills, loan repayments, and other living expenses during a difficult time.

Trade secret misappropriation

There are three main avenues for establishing misappropriation of a trade secret: unauthorized acquisition, unauthorized disclosure, or unauthorized use. The Uniform Trade Secrets Act (UTSA) and the Defend Trade Secrets Act (DTSA) define "misappropriation" as:

> "(i) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

> (ii) Disclosure or use of a trade secret of another without express or implied consent by a person who:

> (A) Used improper means to acquire knowledge of the trade secret; or

> (B) At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was

> (I) Derived from or through a person who had utilized improper means to acquire it;

> (II) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

> (III) Derived from or through a person who owed a duty to a person seeking relief to maintain its secrecy or limit its use; or

> (C) Before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake."

Additionally, the DTSA, enacted in 2016, provides a federal, private, civil cause of action for trade secret misappropriation, allowing companies to protect against and remedy misappropriation in federal court. This is especially useful for companies with a national footprint, as it provides a uniform statute to be applied nationwide.

Insurance coverage for trade secret misappropriation claims can be complex and varies depending on the specific policy and allegations. While it may be a long shot, it is worth reviewing insurance policies and allegations carefully to determine potential coverage. There are generally two sources of potential coverage: the "advertising injury" coverage provided in most Commercial General Liability (CGL) policies and provisions offered in most private company Directors and Officers (D&O) policies. CGL policies often cover "personal and advertising injury," which can include libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas. D&O policies frequently cover a broad range of claims against the company itself for "wrongful acts", but they often exclude "trade secrets" claims per se. However, the insurer may have an obligation to defend if the complaint is not limited to trade secrets, such as when the suit alleges misappropriation of confidential information.

Frequently asked questions