David A. Gauntlett of Gauntlett & Associates on “Insurance 101─Insight for Young Lawyers: No Discovery is Appropriate in Addressing Coverage for Intellectual Property Disputes”
In his article, “Insurance 101─Insight for Young Lawyers: No Discovery is Appropriate in Addressing Coverage for Intellectual Property Disputes” appearing in the July/August 2009 issue of Coverage, David A. Gauntlett states that while many insurance coverage disputes may warrant discovery, it is rarely appropriate in analyzing “offense” based coverage typically implicated in intellectual property/unfair competition/antitrust coverage litigation disputes. This is especially the case where the insurer has denied a defense based on a cursory review of the pleadings in the underlying action. Facts not labels govern determination of coverage issues. All facts essential to analyzing coverage may not be set forth in the pleadings. Coverage should not be evaluated after the fact. An insurer cannot use discovery to conduct the investigation it should have performed upon receipt of notice from its insured.
How individual courts approach this issue depends upon what the facts are for coverage purposes. There are three rules. The first limits analysis to the allegations of the complaint; the second, to facts known to the insurer; the third, to facts available to the insurer. Discovery about what role particular fact allegations played regarding theories of recovery and/or damages in the underlying action are irrelevant to this determination.
Insurers should be wary about denying a defense in a “facts available” forum. Facts first brought to the insurer’s attention after the underlying action concluded (that could have been anticipated based on allegations in the pleadings) may trigger a defense.