One of the initial questions that in-house counsel should consider after litigation is filed against their company is whether insurance is likely to provide coverage for the alleged claims. In many instances, in-house counsel conclude that the corporation’s existing policies are unlikely to provide coverage. This is particularly the case for lawsuits that allege business torts, including those grounded in intellectual property or antitrust theories. But a more thorough analysis is warranted, as existing policies may provide coverage in unanticipated ways. The insurance market has also evolved to provide specialty policy coverage for unique litigation risks, allowing in-house counsel to better manage future risk.
As a starting point, in-house counsel should work closely with their risk management colleagues to understand the full scope of their company’s existing insurance policies. This includes knowing what policies the company has in place; what coverage and exclusions to coverage those policies provide; and, importantly, what the notice provisions require. This baseline level of fluency is critical for in-house counsel both to advise business partners on the potential for coverage and to have a fulsome discussion on the risks and benefits of asserting a claim.
In-house counsel should also be expansive in analyzing how those existing policies might provide coverage. Coverage may arise under a variety of policy forms that do not expressly reference the type of litigation at issue. This includes commercial general liability (CGL) policies, directors’ and officers’ (D&O) policies, and errors and omissions (E&O) policies. For example, CGL policies can provide coverage if the corporation is accused of infringing upon another’s copyright or trade dress through its advertising. D&O policies can also provide coverage in certain circumstances for claims based on unfair trade practices, as long as a director or officer is named.
Moreover, in-house counsel should consider how developments in case law can impact the interpretation of policy language. They can do this by keeping abreast of key case law developments in insurance coverage litigation and reviewing their existing policies. Likewise, while exceptions to policies have become broader in the last few decades, older policies with less comprehensive language can often still provide coverage in the event that the litigation is based on allegations of historic wrongdoing. Consulting with knowledgeable insurance coverage counsel to assess what opportunities exist is often well worth the cost when evaluating the potential for coverage.
Finally, in-house counsel and risk managers should consider obtaining specialty insurance policies to provide coverage for specific litigation risks. This analysis should start by analyzing the enterprise-wide litigation risks and then assessing the costs and benefits of obtaining additional coverage. While the cost of premiums versus the potential cost of defense and underlying liabilities is central to this analysis, in-house counsel should consider other issues, such as whether the policy will require the corporation to cede control of its defense or instead will only require the insurer to approve the choice of counsel.
In the context of intellectual property litigation, corporations can obtain specific intellectual property policies that provide coverage for lawsuits alleging patent, copyright, and trademark infringement—including defense costs, which are often significant in such cases. Media policies, which are a form of E&O coverage covering alleged injuries to competitors, should also be considered. These policies typically encompass express coverage on a broader range of intellectual property torts than the traditional CGL policies, such as unfair competition, as well as reputation damage such as libel, slander, and disparagement.
For antitrust litigation, both E&O and D&O policies can provide written antitrust coverage with both sublimits and finite policy limits. Often, such policies will only offer policy limits below $1 million in coverage solely for defense fees and do not provide indemnity. This coverage mirrors wage and hour policies offered in challenging forums like California. As the defense fee limits are offered only on a self-liquidating basis, with defense fees exhausting policy benefits, savvy corporate counsel can negotiate the retention of their chosen outside counsel. This retention can often be negotiated at the time of policy acquisition at rates far higher than the insurer’s later “appointed counsel” might charge. This retention ensures continuity, strategic alignment, and the preservation of ongoing relationships that corporate counsel would not find disruptive should antitrust claims be brought.
The key takeaways for in-house counsel: (1) know your coverage, (2) be creative and don’t leave coverage on the table, and (3) plan for future litigation by analyzing enterprise-wide risks and weighing the pros and cons of obtaining specialty coverage to insure against these risks.
