Second Circuit Court of Appeals Rejects Nationwide's Claim that Policy Information Constitutes a Trade Secret or Confidential Information
In a consolidated case brought by Nationwide Mutual Insurance Company against former independent insurance agents, the Court rejected Nationwide’s claims that policyholder information constituted a trade secret or “confidential information” under the Connecticut Uniform Trade Secret Act (“CUTSA”). Nationwide Mutual Ins. Co. v. Mortensen, et. al., No. 08-5214 (May 11, 2010).
The Court’s opinion illustrates a basic principle of trade secret law that a company must take adequate steps to protect the secrecy of its alleged trade secret and that a trade secret cannot be readily ascertainable by proper means from another source. In this case, the agents printed out screens of detailed information compiled as to each policyholder’s personal information, policy and claims, premium and history before terminating their relationship with Nationwide and allegedly used that information to compete against Nationwide. These electronic compilations enabled Nationwide to generate quotes based on policyholder data in real time and apparently were maintained in secrecy. However, the data fed into the Nationwide data base came from policyholder files created and maintained by the agents. Although Nationwide took steps to protect its electronic data base, there were no contractual provisions requiring the agents to protect the secrecy of the files, and agents were free under the contract to make and keep their own notes about the contents of the files. The screen prints were nothing more than an electronic compilation of information from unprotected policyholder files.
“Simply because the [electronic] information existed in a different, better protected format than the physical folders does not elevate it to trade secret status. It is not the medium that matters here, but whether the information itself was adequately protected—and it was not. Because this same information was readily available from another source, it does not qualify as a trade secret as a matter of law” (emphasis supplied).
Nationwide also asserted that the agents violated their duty of loyalty by competing against their former employer by use of confidential information. Although Connecticut courts have held that “confidential information” may be protected even if the information does not rise to the level of a trade secret, the agents already possessed the information before entering it into Nationwide’s data base. Thus, the policyholder information could not be protected as “confidential information.”
Regardless of whether an agent is an “independent agent” or “employee,” companies are well advised to take steps to establish the ownership, secrecy or other conditions under which its information can be maintained and/or used by current and former employees/agents.
