Another (Trade) Secret: Whether You’re Covered

When a company is sued for trade secret misappropriation, will an insurance company cover it?  As made evident in Sentinel Insurance Company, LTD v. Yorktown Industries, Inc., 2017 U.S. Dist. LEXIS 14439, 2017 WL 446044 (N.D. Ill. Feb. 2, 2017), it very much depends upon the insurance carrier and the terms of its policy.

In that case, Yorktown was accused of stealing and misusing a client list and sales information.  When the company was sued for violating the Uniform Trade Secrets Act, it demanded indemnification under its insurance policy, which provided coverage for claims for “personal and advertising injury.” Yorktown argued that the trade secret misappropriation claim was essentially an accusation of stealing another’s “advertising idea.”Judge Robert Dow held that the alleged misconduct in no way resembled the copying of an “advertising idea” or copied trade secrets in an advertisement. He also noted that the policy expressly excluded claims regarding the misappropriation of trade secrets.

Though the insurance carrier in Yorktown did not have to pay out, many insurance policies will cover actions related to the misappropriation of trade secrets.  A company should always inquire to see whether trade secrets claims are indemnified by its insurance policy.

To learn about how Castaybert PLLC can assist with trade secret matters, please click here.