It’s important to identify what can be considered a “trade secret” and why trade secrets are the most valuable assets of an agency - and thus worthy of having their confidentiality protected. The insurance industry speaks in terms of “books of business” or “expirations” or “customer lists.” Federal and state courts have ruled that “expirations” are property and, as a body of information contained in the files of each individual insurance agency’s accounts, these “trade secrets” represent valuable assets. Thus, the trade secrets (i.e. the book of business, customer lists, etc.) embody the agency’s true value.
Just how does an insurance agency, or any other service firm, protect the time and resources spent in developing the knowledge of individual accounts that, if revealed, would benefit a competitor? The answer begins with executing a properly drafted employment agreement with each of the agency’s employees and producers.
The employment agreement, or producer agreement, should address the issue of confidentiality of information in order to prevent a former employee from misappropriating confidential information and using it in an unauthorized manner to the agency’s detriment. Those agreements must be equitable for both parties and must balance the agency’s desire to protect its trade secrets and confidential information with the departing employee’s wishes to stay in the business of their common calling and to use their innate skills in pursuing their insurance career with another employer.
An agency’s employment agreements and producer agreements should also include well-crafted non-competition or non-piracy provisions that meet the test of the jurisdiction(s) in which the agency operates. Although this article does not address the specific requirements and limitations of such restrictive covenants. They’re closely related to the protection of trade secrets and confidential information.
What constitutes the confidential or trade secret information that requires protection, and how does it play a part in giving the employer a competitive advantage? Some information about any insurance account is available in the public domain, such as the firm’s Web site, advertisements, and other sources of information. This type of information is generally not confidential information, nor worthy of protection as trade secrets.
What are Trade Secrets?
A trade secret may consist of any formula, pattern, device, or compilation of information that is used in one’s business and that provides an opportunity to obtain an advantage over competitors who don’t know or use it. A trade secret is a process or device for continuous use in the operation of the business. It might be a formula for a chemical com-pound, a manufacturing process, or a list of customers.
When money and time are invested in the development of information and procedures that are not generally known, trade secret protection issues exist. Further, when an effort is made to keep information from competitors, trade secret protection is warranted.
Trade secrets are not limited to secret formulas. In fact, “absolute secrecy” is not a prerequisite; only “substantial secrecy” is required. The definition of trade secrets is quite broad, and may include any of the following:
- Customer or client lists, billing information, customer and client preference information, and contact lists
- Pricing information and marketing plans
- Computer programs and data compilations
- Training and service manuals
- Vendor information
The exact language used to define a “trade secret” varies by state. However, three factors are common to such defini-tions. A trade secret is some type of information that:
- Is not generally known to the public
- Confers some sort of economic benefit on its holder
- Is the subject of reasonable efforts to maintain its secrecy
Some of the factors courts consider when determining whether information is a trade secret are:
- The extent to which the information is known outside the agency
- The extent to which it’s known by employees and others involved in the agency
- The extent of measures taken by the agency to guard the secrecy of the information
- The value of the information to the agency (or its competitors)
- The amount of effort and/or money expended by the agency in developing the information
- The ease or difficulty with which the information could be properly acquired or duplicated by others
How Do You Protect Your Trade Secrets?
An agency must carefully plan and implement an organized program that identifies its trade secrets and then take steps to protect against their misappropriation. Documenting this program, will put the agency in a position to demonstrate to a court of law the measures taken to protect its trade secrets.
At a minimum, a trade secrets protection program involves the establishment of internal security procedures, which should include:
- A written policy of confidentiality included in employee procedures manuals and employment practices guide-lines, emphasizing that all internal communications should be handled in strictest confidence.
- The agency’s confidentiality standards included in employee training and educational programs.
- A process where customer lists, client information and other trade secrets are distributed only on a need-to-know basis, and marked “confidential” where possible.
- Execution of well-drafted Confidentiality/Non-Disclosure agreements with all employees, producers, and
independent contractors.
- Security codes or barriers in the company’s data processing computer systems and other management records that are revised on a regular basis to prevent infiltration.
- A process for storing confidential information in a secure manner and shredding documents when no longer needed.
In our view, the best way to determine confidential information is to examine an insurance account and identify the information that the agency has spent time and money developing, which is not readily available to a competitor, and that gives the agency an advantage. Here’s an offering of questions to help determine what the agency knows about an account that could qualify as “confidential information”, and thus be worthy of trade secret protection:
- What is the ownership of the insured company, and who among the owners controls the insurance program?
- Who is in control of the insured company today, and who will control it in the future?
- What is the financial condition of the insured company
- Who are the insured’s major clients and/or vendors?
- Does the insured company require specific coverage modifications to meet the contracts normally executed with its customers?
- What is the claims history of the insured company?
- Has the insured company had any lawsuits filed against it, and what is the nature and current status of those lawsuits?
- What loss control measures has the insured initiated?
- Does the insured manufacture products, or modify or assemble the products of others?
- What products or services of the insured cause major exposures?
- What is the history of the insured’s workers’ compensation and/or general liability experience modifiers?
- Does the insured carry specialized Products Liability and/or Professional Liability coverage?
- Does the insured need contingent Business Interruption coverage?
Stay Vigilant!
Although the confidential information and trade secrets you need to protect might be as simple as customer lists and client information, it’s essential that you take effective steps to protect this information from misappropriation.
Consult with an attorney who is well versed in matters of confidentiality, non-disclosure, and employment practices to assist you in devising and implementing an information protection program.
Should you encounter a breach, or threatened breach, act expeditiously to retain competent counsel to take immediate action to protect your competitive advantage. A trade secret, once lost, is gone forever.