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Insurance rarely covers 'intangible' losses

Intellectual Property Insurance

Trade secrets and other types of intellectual property often are considered “intangible property” by insurance underwriters, so employee theft of such property is rarely covered, experts say.

A fidelity bond or crime insurance policy will cover losses suffered when an employee is involved in stealing a tangible company asset, such as money or securities, said attorney Marialuisa Gallozzi, a partner at Covington & Burling L.L.P. in Washington.

Employee theft of trade secrets, patents and ideas “happens with some frequency. However, the crime policies typically don't cover this,” said Stephen Leggett, senior vice president in Willis North America Inc.'s FINEX North America division in New York.

“I've not seen any coverage in the last decade that would affirmatively cover your employee stealing your trade secret and indemnifying you for the loss of that trade secret,” said Bob Parisi, network security and privacy practice leader at Marsh Inc. in New York.

Some cyber policies will pay for costs associated with data breaches caused by employees, including the cost of notifying affected individuals if personal information is exposed; forensics costs; legal costs; notification costs; credit monitoring; and public relations costs associated with an employee theft of personal client information stored on company computers, said Christopher Keegan, senior vice president of national resource errors and omissions and e-risk at Willis in New York.

“There is also coverage (in a cyber policy) that would indemnify in the event there is a lawsuit against the organization,” such as when “victims seek damages if their (personal) information has been breached,” said Eric Cernak, vice president at Hartford Steam Boiler Inspection & Insurance Co. in Hartford, Conn.

“As long as a policyholder can establish a direct connection between release of (intellectual property) and money lost, crime insurance should cover the loss because it is not intangible,” said John Nevius, a shareholder at Anderson Kill & Olick P.C. in New York.

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