Does D&O insurance protect a director from trade secret related lawsuit?

Posted by Judd Robbins under Trade Secrets

Question by Mandy C: Does D&O insurance protect a director from trade secret related lawsuit?
Hi –

One of the director and officer of our company has signed an NDA (non-disclosure) & a PIA (Proprietary Invention) agreements with his previous employer (she was a director/officer at that company too). She will be working on similar stuff at our company. She is obviously not planning on using any trade-secrets she was privy too :-). That said if she or our company is sued by her former employer for trade secret violations, can the

1. D&O insurance cover the legal costs involved in defending
a lawsuit involving the new director?

2. We don’t have any D&O coverage right now, what kind of coverage should we ask for to deal with any legal issues that may come up with the new director on board?

3. How does the D&O insurance work – what percentage of legal costs are covered? How do you typically file a claim?
I am not concerned with her PRIOR ACTS just to clarify only her ACTS in our current company that may invite a lawsuit from her previous employer.
For example unknowingly using a business process in our company which her former employer may claim as a trade-secret.

Best answer:

Answer by mbrcatz17
1. D&O policies are NOT standardized, so you’ll have to check with a particular form. IN GENERAL, however, the policy only covers lawsuits related to your position as a director or officer AT YOUR CURRENT POSITION. So it’s going to depend wildly on the exact wording of the suit. In any case, DEFENSE COSTS are the only thing covered – any JUDGEMENT is NOT going to be covered, if she’s done something illegal on purpose.

2. lay out to your agent, EXACTLY what you’re looking for. Again, it’s not going to cover her PRIOR ACTS with a PREVIOUS EMPLOYER. The point is, to cover YOUR company, not to cover HER, or to cover her but only with respect to her position with YOUR COMPANY.

3. Usually with D&O, defense costs are INSIDE THE LIMIT, and you have to use the insurance company’s attorney. You have to put the company on notice, even BEFORE there is a claim. And on the application, there’s a question: Are you aware of anything that could potentially result in a claim? And that’s a really important question to answer, that would void coverage if you lie.

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