Essentials of Coverage: 1
Step one in this process is finding a knowledgeable broker who understands your business, potential exposures and who can suggest the proper types and amounts of insurance for the risks you face. Indeed, buying the right coverage is half the battle. Step two, and perhaps even more important, is understanding how to best exploit coverage once a claim arises.
Consider the following:
You operate a website and, of course, you want to increase traffic. To stay ahead of the curve, you visit other sites and stumble across an ingenious idea. Another operator has a promotion called "Coupling!" - two for one access to similarly themed portals. According to your intelligence, sales have been brisk. You like the idea. Because you're knowledgeable about copyright and trademark issues, you avoid use of similar images, text, and taglines. Instead you start advertising your new concept of "Twins!" Within a week your sales double. Two weeks later, the process server is at your door. Your competitor has sued you for theft of his advertising ideas and accused you of misappropriating his style of doing business. You think your idea is sufficiently distinct, and you want to fight. Will your insurer defend you?
You run a club. Some of the entertainers from the venue down the street want to jump ship. To entice you, they tell you about a routine of specialized moves, manners and other tactics that their former employer has developed over the years. They've been sworn to secrecy - up until, now, that is. You hire the entertainers. They've got the moves and, sure enough, their system is quite effective. Before long, you're the new hotspot. Trouble is the prior club gets an order from a judge preventing use of the technique. You've also been sued for damages. The lawsuit says they've stolen trade secrets. Do you have coverage?
The local prosecutor is looking to raise his profile and to get some press. Even though you're actually far removed from day-to-day operations and sit on the board of an adult entertainment company, Mr. Prosecutor decides to indict the company and its directors. In other words: criminal charges. You have no choice but to fight. You need a good criminal lawyer, but is it possible to mount a defense without bankrupting the company or yourself? Could there possibly be any insurance for this?
In each of the foregoing examples, coverage exists to either defend or indemnify the policyholder. In part, the answer depends on what the coverage forms say and where you live, because insurance law - while generally pro-insured - differs from state to state.
In the case of the website operator, the competitor's misappropriation claim is likely covered under a comprehensive general liability (CGL) policy - the very same coverage form which protects both businesses and homeowners against slips and falls. Not surprisingly, most policyholders don't think about this resource as a valuable asset against corporate lawsuits. Yet, it's there. In fact, coverage is found in the policies' definition of "Advertising Injury," and along with protection against claims for trademark, copyright and other forms of infringement, CGL policies also provide coverage for many forms of unfair competition, theft of business ideas and allegations of defamation. The "trick," however, is knowing what to look for in your policy and perhaps more importantly the law applicable to coverage and coverage disputes.
Indeed, insurance law is a specialized area of practice, relying upon complex rules regarding the interpretation and construction of coverage contracts. In such instances, hiring a knowledgeable coverage lawyer - in addition to competent counsel to handle the underlying dispute - can actually save the insured money by developing the resources necessary to fund a defense, to pay ongoing legal expenses, and to negotiate with the carrier for payments should an appropriate settlement opportunity arise. After all, that's the purpose of insurance:
To protect against the unexpected. Insurers routinely tout this service in their commercials. Yet, rarely do they voluntarily step-up once an actual claim is made. All of the sudden the fine pint comes into play. The response is laden with exclusions, endorsements, and amendments all of which redefines the claim in a manner outside you coverage. Finally, the insurer's response typically ends with some like "If you think we've made a mistake, we invite you to provide us with additional information." Good luck.
In part two, we'll look at ways of unlocking your business' insurance coverage.
Michael Bruce Abelson, Esq. is a partner in Los Angeles, California's Abelson | Herron LLP, and specializes in policyholder coverage litigation for online and entertainment clients. Although this article does not provide legal advise regarding any particular claim or circumstance, questions regarding actual claims, coverages, and rights may be addressed to him directly (firstname.lastname@example.org) or through his firm's website www.abelsonherron.com.