Commercial General Liability Policies and the Risk of "Intangible" Losses


Commercial general liability (CGL) policies are designed to protect policyholders against bodily injury and property damage. “Property damage” requires physical damage to tangible property or a loss of use of tangible property. For example, a company’s CGL policy is likely to cover total loss of a company computer after a fire because the business’s assets were physically damaged. But what if the lost or damaged asset was a valuable trade secret or piece of proprietary confidential information? Unfortunately, most CGL policies would not cover this type of intangible loss.

A 2000 study by the Brookings Institute indicated that at least 50% and possibly as much as 85% of the value of American companies is attributable to intangible assets. Despite the undeniable value of intangible assets to most companies and the fact that theft of intangible property happens rather frequently, a company’s standard CGL policy is unlikely to provide coverage for loss of trade secrets or similar intangible assets. Fidelity bonds and crime insurance policies regularly provide coverage for losses suffered by a business when an employee steals a tangible company asset such as equipment, money or securities, but loss of trade secrets, intellectual property and other intangible assets are not generally covered by CGL or crime policies.

Businesses that face any risk of loss of intangible trade secrets, intellectual property or similar assets should understand their potential liabilities and possible lack of coverage under traditional business policies. It is difficult to overstate the hardship faced by a business following the loss of a particularly valuable trade secret or intellectual property. Therefore, a business with sophisticated intangible assets should understand the benefits of obtaining coverage for such assets through cyber risk policies, fidelity bonds, crime insurance or other specialized manuscript coverage. If a specialized type of coverage for loss of intangible assets is not available or feasible, however, business owners should nevertheless learn how to implement good business practices to minimize such losses. If you have any questions about the risks associated with loss of intangible assets, please contact a member of the McNees Insurance Recovery Group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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