Friday, July 07, 2006, 7/07/2006 06:09:00 AM

Insurance Coverage for Your Trade Secrets Defense?

It sounds too good to be true, right? You get sued by your former employer, but you get your defense covered by your general liability insurer. It happened in a case from Georgia, Colony Insurance Co. v. Corrosion Control, Inc., 2006 WL 1785108 (11th Cir. June 29, 2006), but not without a fight first.

Here’s the background: the Meiers, a husband and wife, worked for Corrpro Companies, Inc., a seller of products and services to prevent corrosion of underground storage tanks. After they left Corrpro, they founded their own company, Corrosion Control, doing essentially the same thing. The inevitable lawsuit came along alleging a whole host of claims, including misappropriation of trade secrets.

The Meiers, presciently, had earlier obtained for Corrosion Control a general liability insurance policy from Colony. They sought to get Colony to provide a defense under the policy, specifically under its coverage for "advertising injury." When Colony balked, the district court took up the matter and ruled that coverage was required.

On appeal, the Court of Appeals for the Eleventh Circuit affirmed. The starting place was the broad principle under Georgia's law that an insurer must provide a defense against any complaint that, if successful, might potentially or arguably fall within the policy's coverage.

Under the policy, covered advertising injury included "[m]isappropriation of advertising ideas or style of doing business." The court held that at least one of the allegations of the complaint concerning use of allegedly proprietary pricing structures and methods and other proprietary data fit this coverage.

Colony then tried to argue that the defense should be excluded on the grounds of a "first publication" exclusion. That exclusion stated that the insurance did not apply to an injury arising from a first publication that pre-dated the beginning of the policy period. The court held that Colony could not make out the exclusion on the record.

Generally it's hard to find insurance coverage of any type in claims concerning misappropriation of trade secrets. This case, though, shows it's not impossible.

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