Insurance Offered For Theft, Misuse Of Intellectual Property

CNA says it will offer a new insurance policy, called TradeSecret, to protect against theft of trade secrets. "TradeSecret is the first insurance program of this type. Most insurance policies cover only tangible items. With TradeSecret, we are moving into the world of ideas and concepts," said William Jennings, executive vice president, CNA Financial Insurance. "Intellectual property is becoming a highly valuable component of companies' assets and, therefore, theft or loss of trade secrets can be devastating."

A recent survey by the American Society for Industrial Security (ASIS) revealed that half of the businesses surveyed had experienced some loss of intellectual property and estimated that their respondents had annual losses of $44 billion. ASIS, however, projects that the figure for all U.S. companies could reach as high as $250 billion annually.

According to the results of this ASIS survey, as reported in the Risk Management Letter, the top causes of loss were theft, unauthorized use or disclosure of proprietary information, and hiring of key employees by competitors. Types of intellectual property include patents, trademarks, copyrights and trade secrets.

Few insurers write intellectual property coverage, and those that do deal with patents, trademarks and copyrights, not trade secrets. "Clearly, loss of trade secrets is a major problem for businesses whose competitive advantage relies on a trade secret, during either the research and development process or the manufacturing stage," added Jennings. "The CNA Financial Insurance TradeSecret program has been created to provide income protection for theft of a company's trade secrets and is the only crime coverage designed exclusively for trade secret exposures."

The policy contains a clear definition of trade secrets and theft. Trade secrets are those ideas designed for commercial use, which derive intrinsic economic value from not being generally known. They must be owned by the company and be in a recorded form which includes formulas, patterns, compilations, programs, devices, methods, techniques or processes.

"In addition, the TradeSecret program includes established valuation methods, allowing a quick and equitable settlement of a claim," explained Jennings. "Another important feature is that our coverage considers the problem as a 'first-party loss of property' rather than a liability caused by infringing on a third party's patent rights."

"We will concentrate on companies that demonstrate a high degree of awareness of intellectual property risk and show a concern for protecting against such losses, as evidenced by their sound practices and internal controls. The initial capacity we are committing to this policy is $10 million with minimum retentions of $100,000," Jennings noted.

"Advances in technology make it easy to connect with anyone, anytime, anywhere, but also greatly increase a company's exposure to fraud, loss of privacy and theft," concluded Jennings. "We've developed TradeSecret specifically to handle these challenges posed by today's 'information age.'"