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Risk managers observe lack of dedicated intellectual property (IP) coverage


April 21, 2009   by Canadian Underwriter


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Risk managers must increasingly grapple with finding coverage for their organizations’ intellectual property (IP) in the absence of a clear-cut insurance product specifically for IP infringement.
‘Pricing Intangibles — Insuring Intellectual Property’ served as the topic of discussion at the Risk and Insurance Management Society’s 2009 Conference in Orlando, Florida.
The importance of IP assets has increased significantly over the past 30 years. Less than 25% of companies’ assets were IP-related in 1975; that number skyrocketed to between 70 and 80% in 2008, said Chris Casper, director of management, liability and surety at Tave Risk Management.
“What does that mean? It means that companies are generating more and more of their revenue through IP,” he said.
“It also means companies are much more likely to be aggressive in the protection of their IP, including bringing suit against those that infringe upon their assets.”
Patent claims significantly outpace shareholder class action claims in the United States, he noted.
In 2008 there were 1,448 patent claims, compared to 210 shareholder claims (marking a 40-year high) brought forth in the United States.
“The frequency for patent claims far outpaces the frequency for D&O claims,” Casper said. “But if you look at the D&O space, there is an entire industry based around managing the liability of that area. The insurance community has yet to embrace, on a relative basis, the IP world.”
Although there is no insurance product specifically designed for the protection of IP, risk managers can explore four different types of coverage to protect their IP from infringement (and against accusations that their organization is infringing on another’s IP), Robert Fletcher, president and CEO of Intellectual Property Insurance Services Corporation, said.
These forms of coverage include:
•    Abatement: a policy that pays outside legal expense to enforce IP against alleged infringers;
•    Defense insurance: a policy that pays outside legal expense to defend against charges of IP infringement;
•    Multi-peril: a policy that provides first-party coverage for loss of value because of an adverse happening due to the loss of an IP infringement lawsuit; and
•    Asset-backed IP insurance: a policy that allows the owner to use his/her IP as collateral for a loan.
Only the last of the options require a valuation of the patent, Fletcher said. The first three coverage options require “the amount in controversy” in order for the IP to be underwritten.
The amount in controversy is the sum of the patent holder’s recoupment of investment, the potential loss of market share, and the increased risk of peril because of increased litigation factor (the more your product is out on the market, the greater the chance of IP infringement).


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