David Gauntlett joins us for a conversation on the intersection of intellectual property, insurance and risk management. In Part I, David shares his background and learnings from working in this field since the early 1980s.
David is a respected expert, widely published author, and nationally recognized speaker on the subject of risk management and insurance coverage for intellectual property. His book, Insurance Coverage of Intellectual Property Assets (Aspen, 1999) is considered a leading text in the field of insurance coverage of intellectual property.
Please share a little bit about your life story and how you became an expert on the subject of insurance coverage for intellectual property.
After graduating from the University of California, Irvine, magna cum laude, in 1976, I went to UC Berkeley’s Boalt Hall Law School where I became an editor of the Law Review, before graduating in 1979. After law school, I joined the Los Angeles firm of Paul Hastings Janofsky & Walker, where I represented management in employment disputes. Often, our clients were self-insured up to a certain level, and the defense fees were so extensive that we often penetrated the lower layers of liability coverage. That’s how I started to learn about insurance coverage. Also, while at Paul Hastings, I had a good friend who was representing policyholders in asbestos coverage disputes, so I became sensitized to the opportunity of representing corporate policyholders in coverage litigation.
Thereafter, given that economic changes meant fewer opportunities to becoming partner in the firm, I decided to move to a smaller firm where I could have a more hands-on experience in business litigation cases. In 1986, I joined another attorney (who had just left a big LA law firm—Allen Matkins) to form a new partnership—Callahan & Gauntlett, which was dissolved in 1995. During that period, I sought coverage for a variety of lawsuits for wrongful termination claims and other torts under CGL policies and under workers’ compensation employers’ liability provisions. Also, we successfully pursued directors’ and officers’ policies for various debacles involving developers and the fallout from the S&L scandals.
In 1987, another law firm asked us to defend an impecunious defendant who was being sued, along with their client; they were hopeful that this party might obtain separate counsel who they could work with, in order to jointly forestall a judgment in a patent infringement suit. That situation led me to pursue coverage, which we ultimately obtained for our client. Also, we successfully litigated the case for our client with the insurance proceeds we obtained.
On April 1, 1995, I formed Gauntlett & Associates. Our firm has always been dedicated to policyholder coverage representation, as well as intellectual property and business tort litigation. The coverage aspect of our practice has focused on the intellectual property, business torts, and antitrust, but we have also pursued coverage for environmental, products liability, asbestos and various other types of claims.
Looking back on your career, what professional values or principles are most important to you and how did these values influence your work?
My principal focus is to advance the goals of my client, typically a policyholder. Occasionally, my client is the underlying claimant who seeks to secure policy benefits that will respond to its claims against the policyholder. Being a coverage-savvy addition to the team representing the underlying claimant provides opportunities to secure better indemnity results through settlement. At times, it means having to provide advice that a policyholder may find counter-intuitive, emphasizing what coverage might arise even though the specific claims for relief asserted against it does not clearly fall within the scope of existing coverage. In other words, sometimes the analysis requires an evaluation of claims that may be inchoate and undeveloped, so much so that even the claimant may not have realized that these inchoate claims are an integral part of their dispute with the policyholder.
Here is an example involving a false advertising claim. As the facts developed through discovery and the progress of litigation, an implicit disparagement claim falling within the scope of coverage became evident so that by the time that a pre-trial conference order was issued in the underlying federal court action, coverage was readily evident to all but the insurer (Hartford) who remained adamantly incapable of acknowledging that this aspect of the lawsuit had always been part and parcel of the asserted claims, but had only become its focus when the matter proceeded to trial. Identifying pathways to coverage that are consistent with the larger dispute that has not yet been the primary focus of a claimant offers opportunities to revisit and clarify the intersection between covered claims and the gist of what claimants have asserted that they themselves may not realize is a focus of their lawsuit until it moves forward to trial.
The requirement of notice pleadings in federal court, the typical venue for coverage cases involving intellectual property issues (which is the mainstay of our coverage practice) often leads to initial failure to develop specific elements that clarify how liability will attach in a way that will implicate insurance coverage. Yet in the face of such ambiguity, Rule 26(f) still obligates the defendant and its counsel to identify whether coverage exists for the asserted claims. But often that cannot be known with specificity because of the poorly articulated aspect of such claims. Courts that seek to adjudicate whether potential coverage arises early in the suit may thus misperceive whether potential coverage exists because they limit claims due to the lack of specific fact allegations. But doing so is contrary to the character of notice pleadings, which only come to life as the facts that underlie the dispute are developed through discovery and motion practice.
To think of it another way, the complaint is like the top of an iceberg—10% above the water, 90% below. Often, those elements of the dispute that implicate coverage are below water and may only come into focus as the case proceeds to trial. Yet, insurers want to be notified at the outset of all potentially covered claims. This disconnect between the litigation, which may only focus on aspects of the dispute, and how that dispute matures, creates unnecessary problems for policyholders who might well be entitled to coverage for fees and legal expenses, especially as the case proceeds.
A recent decision by the Second Circuit, High Point Design, LLC v. LM Ins. Corp., No. 16-1446-cv, 2018 U.S. App. LEXIS 35523, at *15 (2d Cir. Dec. 19, 2018), clarifies that when a defense arises may depend on when the facts revealing potential coverage came to light. Thus, the question may not be IF potential coverage arises, but when specific elements of it are sufficiently articulated that the defense comes into being. So understood, it is essential that defense counsel who are coverage savvy, work with coverage counsel to help articulate why claims implicating coverage may be part and parcel of the asserted lawsuit as soon as possible.
In short, my principal objective is to assure that policyholders obtain the benefits to which they are entitled by arming them with knowledge of the coverage implications of the litigation in which they are involved at the earliest possible opportunity and making sure they do not leave “need on the table” because they are failing to develop a full understanding of what the suit against them asserts and how those assertions may fall within the scope of potential coverage.
You taught a law school course on insurance coverage for intellectual property, antitrust, and e-commerce. What are some of your favorite memories from this experience?
I was fortunate to teach a course at Berkeley that was limited to twelve students. Its intimacy allowed careful analysis of cases where courts struggled with cutting-edge issues on the intersection between insurance and intellectual property. The course was not designed as a survey of insurance coverage law generally, but as a specific interactive dialogue about the challenging issues presented by cutting-edge case law in this sector of the insurance coverage spectrum.
Initially, I was concerned that it would be hard to grade students, but Berkeley had a grading system with three component elements: high honors for the top 10%, honors for the top 40%, and pass to all others. It was not difficult to discern who deserved those appropriate grades based on class participation, written work product and the analytic rigor that they brought to their analysis. There were simply different qualities of legal ability that were revealed in each of the exercises we shared. Whether or not the students were conversant with insurance issues before they took the course was less important than how they engaged with the material once they understood the landscape of insurance coverage issues that the cases we discussed brought into focus.
The birth of my daughter required my sojourn up north to teach to end when the course was over. I have fond memories of frequent visits to Berkeley and the interactions with students that the course generated.