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An American International Group Inc. unit had a duty to defend an extended-stay hotel firm in its litigation because it was charged with violating the Federal Computer Fraud and Abuse Act, which was not excluded in the policy, says a Delaware judge.
Wichita, Kansas-based WoodSpring Hotels L.L.C., a former employee who had previously worked for competitor Charlotte, North Carolina-based competitor Extended Stay America Inc. and a consultant were charged with appropriating ESA’s electronic information, including a customer database, according to Wednesday’s ruling by the Delaware Superior Court in Wilmington in WoodSpring Hotels LLC v. National Union Fire Insurance Co. of Pittsburgh, Pa. Charges included violation of the federal defend trade secrets act, said the ruling
National Union had a directors & officers policy with National Union, a unit of New York-based AIG, that provided a $10 million limit over a $50,000 self-insured retention, according to the ruling.
Following mediation, WoodSpring and the employee settled the litigation, with the company agreeing to pay $1.16 million and the employee paying $40,000 from her own assets.
National Union covered some of the employee’s litigation expense under a reservation of rights, but refused to defend or indemnify the company, contending these costs fell under the policy’s exceptions to coverage. WoodSpring then filed suit against National Union.
The court ruled in WoodSpring’s favor. The National Union policy does have an exclusion applicable to the misappropriation of trade secrets, which is the “gravamen” of the litigation, says the ruling.
However, one count of the complaint also charges unlawful access of ESA’s protected computer system, with the damage related to copying and communicating ESA information.
“National Union could have undertaken an investigation to determine exactly what information that entailed, but, with the record before the Court, it appears that neither AIG or National Union did that. As such, the Court finds there was a potential of liability, even if remote, under the policy,” the ruling said.
This count “therefore, could arise in relation to a covered claim, and thus may not be excluded from coverage” by the trade secrets exclusion, said the court, in concluding WoodSpring is entitled to summary judgment because it had a duty to defend the insured. The court also held the insurer had a duty to defend the employee.
(Reuters) — American International Group Inc. reported a 21 percent decline in first-quarter profit on Wednesday, due to higher catastrophe and bad weather claims, as well as weaker investment income.