The Law

Trade Secret Violations Leave Insurer Paying for the Defense

After hiring a competitor's former employee, one company faced a litany of legal charges and a claim denial from its insurer.
By: | July 30, 2018 • 2 min read

When Bernadette Ruby left her employer, Extended Stay America Inc. and ESA Management, for a job at WoodSpring Hotels, she did not know the legal hubbub she’d bring with her.

ESA sued Ruby, WoodSpring and Michael Docteroff, claiming “Ruby, with the help of ESA’s IT consultant Docteroff, allegedly obtained and distributed confidential and competitively sensitive ESA-electronically stored information, including an ‘ESA Sales Spreadsheet,’ to WoodSpring’s sales team.”

This data, ESA claimed, held extensive customer and market-specific information that could give WoodSpring an unfair competitive edge over ESA. The suit listed 11 specific counts of action against the defendants, including violations of various trade secrets acts. One count specifically alleged Docteroff’s violation of the federal Computer Fraud and Abuse Act (CFAA).

Advertisement




WoodSpring held a D&O insurance policy through National Union Fire Insurance Co. When the ESA suit was brought against WoodSpring, the hotel turned to National Union to defend litigation under the D&O policy, which had a $10 million limit and a $50,000 self-insured retention.

Multiple accusations against an insured can make defense dicey, especially if one accusation is covered and another is not. Be certain to detail coverage exclusions to avoid loopholes in court.

National Union denied the claim, stating that the counts of sharing trade secrets against WoodSpring were excluded in its D&O policy. It did state, however, that it would advance Ruby’s defense costs subject to a reservation of rights.

Meanwhile, mediation on the underlying suit was reached, and WoodSpring settled in the amount of $1,160,000. Ruby would have to pay ESA $40,000.

WoodSpring filed a complaint against National Union, stating the insurer had a duty to pay defense costs for claims against both the hotel and Ruby. The ESA complaint, said WoodSpring, did not specify or explicitly refer to any trade secrets in the CFAA count, which made the supposed exclusions to the policy irrelevant.

When the court reviewed the wording of the exclusion on trade secret coverage, it sided with WoodSpring.

Scorecard: The court ruled National Union has a duty to defend both Bernadette Ruby and WoodSpring in the underlying ESA action.

Takeaway: Multiple accusations against an insured can make defense dicey, especially if one accusation is covered and another is not. Be certain to detail coverage exclusions to avoid loopholes in court. &

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]