A recent Law 360 story by Daphne Zhang “Utah Asks Insurer To Pay $1.8M Atty Fee in Trade Secrets Suit”, reports that Utah's Department of Administrative Services sued an AIG subsidiary, seeking to compel the carrier to cover the $1.8 million it spent defending Utah State University in an underlying trade secrets suit. The department told a Utah federal judge that Lexington Insurance Co. breached the insurance contract by refusing to reimburse its legal bills incurred in defending Utah State University Research Foundation against global weather analytics company GeoMetWatch in the underlying suit.
According to the suit, AIG has asserted that the fee incurred by the Utah Attorney General's Office from defending the university in the underlying litigation is defined as "employees salary" under its policy and contended that it will not pay for the state's defense costs. Utah and its state administrative department said AIG has denied coverage for the underlying defense costs without any written explanation. The Beehive State is alleging breach of contract and breach of good faith and fair dealing, and asking the court to hold that AIG should cover it in the underlying litigation and pay damages.
The department said its risk management division insures the state of Utah and its agencies for property and personal injury up to $1 million. The state also held an excess liability policy from Lexington that covers loss once the $1 million primary policy is exhausted.
In March 2018, the division notified AIG that it had incurred over $1.195 million of legal bills in the underlying action and requested reimbursement under the policy. The federal claims in the underlying case are currently pending in the Tenth Circuit and state claims are pending in Utah state court. As of the filing of the suit, Utah has incurred over $1.8 million in attorney fees, according to the complaint.
AIG then requested documentation of attorney fees. The underlying case was under a protective order, requiring the AIG staff to sign a non-disclosure agreement before reviewing the documents. In November 2018, one of the attorneys representing Utah State University sent AIG the requested documents and reminded AIG to sign the agreement to comply with the protective order. In May 2019, the division asked AIG to respond to its defense cost claim and made the request again a month later. In April, the director of the division wrote to AIG regarding its alleged failure to pay the defense costs in the underlying litigation.