A former board member of an insurtech company started two independent insurance agencies. The company sued the agencies after it suspected that they were using its technology.
The company was founded in 2014 to act “as an electronic insurance agent, allowing insurance companies to offer insurance and customers to purchase insurance through a mobile application …” The application was “powered” by the company’s “groundbreaking” backend software and technology. The company spent years developing and testing the system.
In 2016 they began fundraising for an initial round of financing. The company’s principal gave a presentation in October to a principal with a venture capital firm. That firm became the company’s lead investor three months later when the first round of financing closed. The investment gave them a seat on the company’s board of directors. They appointed the person who heard the initial presentation to be their representative on the board. As a board member, he received confidential information about the technology on several occasions.
In late January 2017, he told the company’s principal that he was working on a new project within the venture capital firm. According to the presentation he gave to the principal, the new company was to help insurtechs with finding underwriting capacity for their products.
As the business grew in 2017 and 2018, the board received more confidential information. The company’s principal understood that all board members would protect that information. However, they asked this particular individual to leave the board in 2018. The court’s opinion did not state the reason.
The venture capital firm’s “project” became two insurance agencies. In July 2019 the insurtech’s principal started seeing job postings for the agencies indicating that they were offering a technology platform that sounded similar to his company’s. A check of their website showed that they were no longer advertising services to insurtechs. Instead, they were offering products identical to the insurtech’s. In mid-2020, the company had to fight off two attempts by the insurance agencies to take its customers and lost one of them.
The insurtech company sued the agencies for $500,000 in damages plus punitive damages and costs and a permanent injunction on further activities. They made seven claims against the agencies. The agencies asked the court to dismiss all claims, arguing that they were too late under the statute of limitations.
In 2022, the judge dismissed five of the claims but refused to dismiss the other two. First, he ruled that it was debatable as to when the statute of limitations time period began. The agencies argued that the company should have known what was going on in January 2017, but the company said it didn’t realize until the summer of 2019. Given the disagreement, the judge refused to dismiss the claims as untimely.
He also held that two of the company’s allegations were plausible – misappropriation of confidential information and aiding and abetting a breach of fiduciary duty. The board member allegedly took the information improperly and used it in his new insurance agencies. The judge also ruled that he violated his fiduciary duty of loyalty to his principal (the insurtech company) by improperly taking the information and giving it to the insurance agencies.
There do not appear to be other court decisions in this matter, indicating that an out-of-court settlement occurred.
The principal of these agencies clearly acted in an unscrupulous and unethical manner. He took advantage of his position on the board of directors by copying their trade secrets and using them to enhance his own business. His business competed with theirs, and they rightly took action to stop him.
Succeeding in business is hard enough when everyone follows the rules. Trying to steal someone else’s ideas will likely result in costly litigation against an agency. The former board member could have asked to license their technology. That would have given him access to their platform in a way that satisfied everyone. Instead, he tried to get it for free. It ended up costing him.
