Lawyer’s E&O Insurer Owes No Defense in Trade Secret Theft Case

Why It Matters

The decision narrows the boundaries of lawyers' errors‑and‑omissions coverage, exposing attorneys to personal liability when alleged wrongdoing lies outside traditional legal representation.

Key Takeaways

• Court denies defense coverage for non-legal misconduct
• Claims involve trade secret theft, not legal advice
• Insurer granted summary judgment, no duty to defend
• Lawyer's internal investigation claim lacked evidence
• Ruling may tighten E&O policy interpretations nationwide

Pulse Analysis

Professional liability insurers typically cover claims that arise directly from the provision of legal advice or other specialized services. Courts examine whether the alleged wrongdoing is rooted in the attorney's professional skill set, often using the "claims‑arising‑from‑the‑performance‑of‑professional‑services" test. When a case hinges on conduct unrelated to legal counsel—such as facilitating a client’s illicit data transfer—insurers can argue that the policy does not trigger, as seen in the Cohen ruling.

Trade secret theft cases present unique challenges for attorneys who may be drawn into client disputes beyond the courtroom. In this instance, the lawyer allegedly acted as a conduit for confidential information and coordinated additional breaches, actions that fall squarely outside the realm of legal advocacy. The judge’s emphasis on the absence of specialized legal skill underscores a growing judicial willingness to dissect the factual underpinnings of alleged misconduct, separating genuine legal representation from ancillary wrongdoing.

For law firms and insurers, the verdict signals a need to tighten policy language and reinforce internal safeguards. Firms should educate attorneys about the limits of E&O coverage and implement strict protocols for handling client data, especially when conflicts of interest arise. Insurers, meanwhile, may revise underwriting criteria to explicitly exclude coverage for conduct that facilitates criminal activity or breaches of confidentiality, reducing exposure to costly defense obligations. The broader industry impact will likely be a more cautious approach to risk allocation, ensuring that coverage aligns closely with the core functions of legal practice.