Normally, an insurer makes its coverage determination based on the allegations of a complaint. Insurance coverage may increase the likelihood of settlement by adding additional sources of settlement funds. However, because of potential policy defenses, insurers' indemnity obligations may be limited. Insurers, seeing a proliferation of patent infringement litigation, and therefore business opportunities, now offer a variety of patent infringement insurance policies. Policies can cover either the prosecution or defense of patent infringement actions.
Policies covering prosecution costs typically pay all prosecution costs.
If the patent infringement lawsuit is successful, the insured reimburses the insurer at an agreed upon percentage over and above the actual costs. Such policies have a rigorous underwriting process that determines whether such patent infringement insurance will be issued. Defense patent infringement insurance policies are of two general types, cost reimbursement only or cost and indemnity. These policies vary greatly in their coverage terms. The subtle differences in policies make it imperative that insurance policies be thoroughly reviewed and compared to ensure that the policy which best meets a company's needs is purchased.