Action over stolen trade secrets does not fall under defamation cover (US)

20 June 2018Patrick Bracher, Norton Rose Fulbright
Patrick Bracher from Norton Rose Fulbright.

Patrick Bracher from Norton Rose Fulbright.

A US company was sued for misappropriating trade secrets relating to a medical device and poaching a number of employees. The company was insured in terms of an advertising and personal injury section of its commercial general liability policy, and it attempted to allege that there was a claim for implicit defamation obliging the insurers to fund the proceedings. This was rejected by a Pennsylvania federal judge.

The parties had settled their claim and the defendant company and two executives sought to get their costs covered by their insurers. The court said that read either separately or as a whole, the allegations in the underlying suit had nothing to do with harm to another’s reputation. The allegations pertained to a business dispute over stolen employees and stolen confidential trade secrets. If anything, the defendant was accused of seeking to trade on the plaintiff’s good reputation in order to market its own competing product. None of the facts alleged in the complaint amounted to claims for defamation.

The claim was also rejected because the policy had an exclusion of claims for intellectual property violations. The court said that while the exclusion is ‘perhaps harsh’ it could not be seriously disputed that it applied to the whole complaint. It is not clear why a clearly worded exclusion relating to IP rights disputes would be harsh.

The misleadingly-named ‘advertising and personal injury section’ of policies in the US often gives rise to this kind of dispute where the parties seek to introduce a defamation element in order to get cover by the insurer.

[The case is Tela Bio Inc. et al v Federal Insurance Co., case number 2:16-cv-05585, US District Court for the Eastern District of Pennsylvania]

First Published by Financial Institutions Legal Snapshot.

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