Insurer Had Duty to Defend Lawsuit Notwithstanding Exclusion for Trade Secret Claims Where Other Claims Were Brought That Were Non-Trade Secret Claims

Judge Story granted summary judgment in favor of the insured in a lawsuit to determine whether an insurance company should have defended a lawsuit against a provider of health care consulting services.  Medassets, Inc. v. Federal Insur. Co., 2010 U.S.Dist. LEXIS 31186, Decided March 31, 2010. Medassets works with health care providers to help them get good deals on purchases of medical devices.  As part of this, Medassets may obtain historical purchasing information from hospitals.  Two medical device providers sued Medassets, claiming that Medassets had illegally induced providers into giving them confidential and trade secret pricing information.  There were four counts, (1) tortious interference by inducing breaches of confidentiality agreements; (2) tortious interference with contracts; (3) tortious interference with prospective contracts; and (4) misappropriation of trade secrets.  Medassets had two insurance policies with Federal, (1) an Errors and Omissions policy (E&O); and (2) a D&O Policy.  Medassets submitted claims under both policies and federal denied coverage under both policies and refused to defend the lawsuit.  The court upheld Federal's decision on the E&O policy but held the opposite under the D&O policy, finding as a matter of law that Federal had a duty to defend.

The letter denying coverage to Medassets under the D&O policy stated in pertinent part that the coverage and thus the defense of the claim were denied under an exclusion providing that coverage would not be provided for claims "based upon, arising from, or in consequence of any actual or alleged infringement of copyright, patent, trademark, trade name, trade dress, service mark or misappropriation of ideas or trade secrets."  The question of the duty to defend was a matter of Georgia law.  Under Georgia law, the duty to defend is a different question than the duty to indemnify, in other words, to pay damages awards.  In Georgia, like other states, courts look to the allegations of the complaint to determine whether a claim of liability is asserted.  Even if allegations are incomplete or ambiguous as to coverage an insurer is obligated to defend.  Thus, the question whether there is a duty to defend favors the insured.  To excuse the duty to defend, the complaint must unambiguously exclude coverage under the policy, and doubt as to duty to defend is resolved in favor of the insured.  If any one claim must be defended, then all of them must be defended. 

In refusing to defend the court held that Federal had engaged in a strained interpretation of paragraph 8 of the complaint which alleged:  '[Plaintiff] does not have a uniform price for CRM devices and other products, but rather tailors its pricing based on the mix of goods and services that Guidant Sales provides to its customers.  Generally, Guidant Sales will submit proposed prices to medical centers that state an access price and then offer discounts if the medical center will commit to a certain percentage maket share for [plaintiffs] produts.  The pricing information contained in [Planitiff's] proposals and contracts is confidential between [Plaintiff] and the customer.  [Plaintiff's] pricing information is a trade secret, which [Plaintiff] takes reasonable measures to protect."  Pargraph 8 was incorporated into all of the claims by reference.  Thus, Federal deemed that all of the claims were claiming a trade secret violation, which excluded coverage. 

The court noted, however, that before claiming a trade secret in the last sentence of paragraph 8, the plaintiff also claimed that the information was confidential.  The court found that the difference between confidential information and trade secrets was significant, because information can be confidential without rising to a trade secret.  Plaintiff pled in the alternative that the pricing information was either confidential or a trade secret.  Thus, found the court, the first three counts of the complaint did not rely on the information being a trade secret.  Because of this the court found that the exclusion of trade secret claims from the D&O policy did not extinguish the duty to defend Medassets in the case.

Federal also moved that the court find that, in the event of the duty to defend, the liability of Federal be limited to the limit of the policy, $3 million.  The record showed that Federal spent a whopping $7 million on its defense of the underlying lawsuit.  Medassets argued that it might be eligible for consequential damages as a result of the breach of Federal, notwithstanding a lack of bad faith by Federal.  The court opined that this question was for the jury.  Whether an insurer is liable for damages in excess of the policy limit is a question of fact according to the court.  Thus, the court refused to grant Federal summary judgment on the liability limit.