New Insurance Coverages Allow Greater Control In Managing Risk

Business is all about risk, and the business of in-house counsel involves managing certain risks in ways that make economic and legal sense. Recent developments in the insurance industry may provide businesses with additional tools to meet the various legal and economic uncertainties in a number of new areas.

New business risks have risen to prominence over the past five years, and the insurance industry has developed new forms of insurance coverage to meet those risks. Few standard insurance policies protect businesses from all losses or damage to their property, and many of today’s emerging risks are not covered by most standard policies. To close this coverage gap, a growing number of insurance companies are developing policies to specifically cover these emerging risks.

Intellectual Property Insurance

Many companies today have developed new processes, applications and other intellectual property with the expectation of gaining a critical competitive advantage. Depending on their success, the intellectual property behind these technologies may become a company’s most valuable asset. Where there is value, however, there is the temptation to steal, and intellectual property infringement occurs frequently.

Each act of infringement diminishes the value of a company’s intellectual property rights. While patents, copyrights and trademarks are enforceable within the United States (and abroad in certain circumstances), these lawsuits can be extremely expensive and time consuming to pursue (or defend). Companies faced with repeated acts of infringement might be forced to face the difficult choice of incurring significant legal fees to pursue their rights or watching their competitive advantage erode.

To help companies manage this risk, many insurance carriers now offer intellectual property insurance. Standard intellectual property insurance policies can be written to cover patents, trademarks, copyrights and computer software design. These policies are available for manufacturers, distributors or users who need to protect their rights in emerging technologies.

Intellectual property insurance covers claims arising from business operations, and generally requires the insurer to pay the costs to pursue a claim to enforce a company’s intellectual property rights, or to defend a lawsuit if another party tries to claim the rights to the company’s technology. Intellectual property insurance can ensure that a company will have adequate funds and assistance to pursue or defend against claims or legal proceedings relating to its intellectual property.

Intellectual property insurance can also allow companies to add stability to their intellectual property portfolio, and can make intellectual property costs more predictable and manageable. This insurance may also provide an insured the security of knowing that it will have adequate resources to properly protect and enforce its rights to use its intellectual property.

While insurers typically will not issue coverage until they receive proof that the company seeking coverage has completed an intellectual property search and has properly perfected its interest in such intellectual property, either through the Patent & Trademark Office, the Copyright Office or otherwise, those companies that can satisfy the various insurers’ requirements can use intellectual property insurance to help stabilize the risk inherent in an intellectual property portfolio.

E-Business Liability Insurance

E-business is based upon the use of computers, e-mail or the Internet or other computer networks to exchange information or complete business deals electronically. Viruses, hackers, and system interruptions can be devastating to any business, but the resulting problems can be particularly damaging to E-businesses.

In addition to lost earnings or reputation, E-businesses may face liability where these threats affect their ability to perform contracts or keep their clients’ information confidential.

Several insurance carriers now offer e-business liability insurance, which generally provides coverage for technology errors and omissions, Internet or e-mail based defamation, liable or slander, or intellectual property offenses, including claims of copyright, trademark, or privacy infringement. In addition, e-business policies may insure against breaches of computer security and resulting claims for interruption of online service, and liability from theft of confidential information (such as credit card numbers).

While e-business often allows for greater cost savings, convenience, and productivity, it can also give rise to additional potential liability. E-business liability insurance can help companies to mitigate the potential risks inherent in running an online business.

Employment Practices Liability Insurance

Employment based lawsuits are on the rise. According to one recent report, nearly one-half of all new companies surviving at least five years will face a lawsuit from a current, former or prospective employee. Young and growing companies may be particularly susceptible as these companies have often not formulated employment policies. Nonetheless, companies may be subject to employment-based suits no matter how careful they are.

Employment practices liability insurance is a new type of liability insurance, which can provide protection against employment-related lawsuits alleging discrimination (age, sex, race, disability, etc.), wrongful termination of employment, or sexual harassment made by current, former, or potential employees. Employment practices liability insurance covers legal fees and judgments, and protects the company as well as its directors and officers against liability for such claims.

Social interaction is a part of today’s workplace, and unsupervised remarks by an employee, independent contractor, or even an outside affiliate can offend and give rise to a lawsuit. No company is immune from these suits, and even groundless claims may be difficult and expensive to defend against. Employment practices liability insurance can help a company to manage its potential risk.

Mold Insurance Coverage

Mold litigation has skyrocketed over the last decade. According to a recent report, mold related lawsuits against building contractors, insurance companies, hotels, schools and airports have increased by 300 percent since 1999, and 10,000 suits are pending nationwide.

Mold claims have had a profound impact on the construction industry. Mold discovered behind walls, under carpets, and inside air ducts have plagued contractors, engineers, landlords, employees and others businesses that invite employees or visitors into their workplace.

Despite the rising frequency of these claims, companies and individuals are finding it increasingly difficult to secure insurance coverage for these claims. Depending upon the insurance policy language, mold claims are excluded from many property and general liability coverages, leaving businesses on their own to defend against costly and complex claims.

Although all litigation is usually expensive, mold cases can be particularly costly due to the high investigation costs, large number of potential claimants, complicated subject matter often requiring multiple expert witnesses, and significant potential damages involved.

Awards for personal injuries can exceed $1 million, and remediation costs can reach up to $150 per square foot. In cases where battery or wrongful concealment is alleged, the responsible party could face punitive damages as well.

As companies have grown more sensitive to the potential risks associated with mold claims, several insurers have begun to offer insurance coverage specifically designed to fill the insurance gap created by the mold and pollution exclusions. This insurance coverage is typically geared toward contractors and construction companies, but may be obtained by business owners who want to protect against personal injury claims or costly remediation.

Christopher T. Vrountas and Kenneth E. Rubinstein are attorneys in the commercial services group of New Hampshire-based Nelson, Kinder, Mosseau & Saturley, P.C. This article is intended for general information purposes only and is not intended as legal advice.