Insurance Journal Forums

I was contacted by one of my clients who said he is in the process of starting a new company along with a couple of partners. One of the partners is currently working with a company in the same industry and has a non-compete clause for six months post employment. He doesn't plan on being actively involved in the new venture until the non-compete expires but they have been told by their lawyer that they should get a insurance policy in case his current employer believes he is violating his non-compete and takes legeal action. The company is located in NJ. Is anyone aware if this coverage exist and if so who offers it?
Thanks!

My understanding is that non-compete contracts are unenforceable almost everywhere. You can have non-piracy or similar contracts with penalties, but you cannot take away a person's occupation. You, or better, he, should contact a local employment law attorney.

Most of the time the only enforceable portion of a "non-compete" is the caveat protecting the former employer's "book of business"; that is, you are not allowed to solicit clients that are insured through the former firm. Any client contact must originate from the insured, not the agent.

Not sure exactly what your question is...

"told by their lawyer that they should get a insurance policy in case his current employer believes he is violating his non-compete and takes legeal action"

To me it seems management liability (D&O), but would probably not be covered if there is any knowledge of infomation that may give rise to a claim.

Repeat after me, "Lawyers are not experts in insurance".

What kind of policy would cover an intentional act? Like I said, talk to an employment lawyer.

Lawyers are not insurance experts but they are supposed to be contract experts of which, an insurance policy is a contract.

A non-compete may or may not be enforceable depending upon reasonability. It is reasonable to expect that a gas station manager would not take a job at a competing station next door. It is unreasonable to not let them take a job 5 miles away.

Also, accepting compensation ratchets up the enforceability.

gforaker gave good advice, see an employment attorney.

I've never heard of any type of insurance coverage that would insure against a non-compete. As to the poster, who said non-competes are almost unenforceable anywhere. That couldn't be any further from the truth. Here in Texas, Texas law favors the employer and non-competes usually hold up, unless that plaintiff can show good cause that's it's limiting the person's ability to make any type of living. There are always exceptions, but non-competes are very commonly upheld under Texas law.

Thank you all for your impute. From my experience non-competes are inforcable in NJ. After speaking with an underwriter a D&O policy seeems to be the best bet for having something that would respond to a claim by the prior employer. It would not pay if found they were in breach of the non-compete but would pay to defend.