Case Study: Software developers sued for poaching employees

For Northern California’s software startups, the talent pool is at a premium. Businesses are constantly searching for the next qualified software superstar. That’s because the true value of a Silicon Valley company can be found in its intellectual property - the software engineers and their specialized skill set, as well as, the knowledge they have from writing each piece of code.

So, when one furiously growing, private, tech startup (Company A) hired multiple employees away from a competitor, the only way the competitor could attempt to arrest such growth was to sue the Company A’s CEO and two of their past employees that jumped ship. The competitor filed a lawsuit against the CEO on the grounds of patent infringement, loss of intellectual property and unfair competition. Because the lawsuit specifically named employees, it triggered Company A’s Directors and Officers (D&O) liability policy.

After hiring nearly 1,000 employees in its short two years of existence, the CEO’s company was valued at over $1 billion and growing. Since their carrier had insured them when they were smaller, the underwriter wasn’t anticipating a D&O claim of this caliber. But, because HUB worked with the CEO to report the claim right away and chose from the D&O insurance policy’s list of preferred attorneys, they were awarded full coverage for the defense costs accrued in indemnifying the CEO and two employees, which quickly added up to $500,000. Company A was responsible only for paying their deductible and a portion of the final settlement agreement.

Had the CEO engaged council first and attempted to take the case into his own hands for the company, he would have risked coverage being denied or would have had to pay for a portion of the defense costs beyond the deductible. Private company D&O policies require companies to choose from a list of preferred attorneys and vendors. Conversely, public company D&O policies allow companies to choose their own defense council. This is one of the major reasons public D&O policies cost significantly more than private D&O policies.

The following year, HUB worked with the CEO to further customize Company A’s D&O policy in order fit their new, larger size, ensuring appropriate D&O coverage for years to come.