Trade Secret - Insurance Coverage Advice and Litigation

Trade secret coverage has been problematic from the beginning because the act of distribution while implicating advertising is often not the focus of allegations in the complaint. Evidence as to the manner in which marketing activity of an alleged infringer caused injury to the trade secret owner often only develops in subsequent discovery. Thus it is critical to evaluate what has been unearthed by this process in making the case that fact allegations of distribution trigger a defense. The addition of the trade secret exclusion by ISO in 2001 has made the quest even more difficult.

Representative Cases:

Hameid v. National Fire Ins. of Hartford, 31 Cal. 4th 16 24 n.3 (2003) (Amicus curiae for United Policyholders) (Limited scope of opinion by persuading Court to add the term "usually" to the definition of "advertising" which provides: "widespread promotional activities usually directed to the public at large" (id. at 24) and expand the scope of the definition to embrace "specific market segments" so that the definition of "advertising," where undefined in the policy, was not narrower than that subsequently adopted by the policy's drafter, ISO, in its next iteration of the policy. "We have limited our review to the question presented and do not have occasion to decide whether widespread promotional activities directed at specific market segments constitute advertising under the CGL policy.")

Nusonics, Inc. v. Northwestern Pacific Indemnity Co., No. CJ 97-4194, D.C. Tulsa County (Jan. 21, 1999), reh'g denied (The court, analyzing coverage for a variety of claims, including trade secret misappropriation under a 1986 ISO policy provision, found a duty of defense properly arose and reaffirmed such opinion on a reconsideration motion brought by the insurer. The court, referencing its earlier January 21, 1999 minute order, noted that it had granted plaintiff's motion for summary judgment determining that Nusonics breached the employment contract by failing to provide a defense and awarded damages to plaintiff in the amount of $28,390.65, representing the costs incurred in defending the Wheatley action.).

Sentex Systems, Inc. v. Hartford Accident & Indemnity Co., 93 F.3d 578, 580 (9th Cir. (Cal.) 1996) (On August 19, 1996, the Ninth Circuit affirmed the district court's finding of potential coverage, noting that the rulings "that Sentex was engaged in ‘advertising activities' and that ESSI's alleged injuries were caused by these activities . . . are not challenged on appeal." Addressing the scope of the offense of "misappropriation of advertising ideas or style of doing business," the court reasoned: "This policy's language, given its ordinary meaning, does not limit itself to the misappropriation of an actual advertising text. It is concerned with ‘ideas,' a broader term.")