The United States Supreme Court's amendments to the Federal Rules of Civil Procedures (FRCP), which went into effect Dec. 1, 2006, have brought back into focus E-discovery issues for Plaintiff counsel in insurance bad faith cases. Virtually all carriers keep all or portions of claims files and "training manuals" in electronic formats. The new rules place some new affirmative burdens on the carriers and their counsel to preserve and produce these documents. They don't, however, eliminate some of the long standing problems that exist from the Plaintiff's perspective regarding electronic files or E-discovery generally involving Rule 26 initial disclosures or initial discovery plans. Understanding what the new rules do and don't provide for is critical in the battle to uncover electronic documents that prove coverage or breach of the duty of good faith and fair dealing.
The new rules do not change the initial disclosure requirements that only force a defendant to produce documents that it may use to support its claims or defenses. This means that many necessary documents such as training manuals by whatever name or format and complete copies of other file materials including adjusting files still need to be requested in the initial meet and confer discovery plan.
Counsel for insurance companies are also reviewing the new affirmative disclosure requirements and searching recent decisions in an attempt to blunt their impact. They are counseling their clients at the outset of a case (or sometimes before) to establish data collection plans and conduct interviews so that they can prioritize data to determine whether there is case-altering evidence that might be discovered. As part of this effort they identify key data locations and important file types. They also counsel against incomplete in house data collection efforts that might miss critical information that counsel would need. Included in this would be failing to use the correct names or limiting names in data searches. In some cases this guidance is given by national supervising counsel without the direct involvement of local defense counsel. Plaintiff counsel should be mindful of these issues when requesting or following up on E-discovery. In many cases it is helpful to think like a "reverse engineer" when creating a discovery plan with the idea that much of the information may already been assembled in some form by counsel for the carrier.
. The new rules regarding initial disclosure specifically are:
Rule 26. General Provisions Governing Discovery;
Duty of Disclosure
(a) Required Disclosures; Methods to Discover
(1) Initial Disclosures Except in categories of
proceedings specified in Rule 26(a)(1)(E), or to the
extent otherwise stipulated or directed by order, a
party must, without awaiting a discovery request,
provide to other parties:
(B) a copy of, or a description by category and location of, all documents, electronically stored information, and tangible things that are in the possession, custody, or control of the party and that the disclosing party may use to support its claims or defenses, unless solely for impeachment;
(b) Discovery Scope and Limits. Unless otherwise
limited by order of the court in accordance with these
rules, the scope of discovery is as follows:
* * * * *
(B) A party need not provide discovery of
electronically stored information from sources that
the party identifies as not reasonably accessible
because of undue burden or cost. On motion to
compel discovery or for a protective order, the party
from whom discovery is sought must show that the
information is not reasonably accessible because of
undue burden or cost. If that showing is made, the
court may nonetheless order discovery from such
sources if the requesting party shows good cause,
considering the limitations of Rule 26(b)(2)(C). The
court may specify conditions for the discovery.
The amendments to the Rule 26 address two key areas: discovery of electronically stored information and inadvertent production of privileged or "sensitive" company data. The rules encourage parties to agree on the format in which the information will be produced. The party requesting documents may ask for them in their native format complete with the partially hidden coding "metadata" that usually isn't printed as part of the finished document. Metadata includes file information about who created the file, when it was created, how large the file is, etc. Rule 26(f) (3) calls for the parties when making their discovery plan to deal with the "form and format" of the electronic data. This is a reference to the need to turn over metadata about files. It is up to the parties in the initial "meet and confer" conferences to hash out the details. Frequently in insurance bad faith cases the initial production of the claims file is a pristine document without any of the human interaction that experienced counsel know often accompanies a difficult claims issue. This may well be because specific software choices were made when the file was "printed out" or delivered. Does the printout or discovery show how many times a note was "revised" or the electronic date it was created? Is there an electronic indicator that a reply was requested or generated that does not appear? Are all the recipients of the note identified? The metadata can assist in identifying if there is any missing information, what choices were made in producing the document or if there are other areas to inquire into. The importance of the metadata is probably why it is becoming a hotspot of discovery disputes under the new rules.
26(f)(3) any issues relating to disclosure or discovery of
electronically stored information, including the form or
forms in which it should be produced;
When the volume of data being recovered is large the new rules in 26 (b) (5) (B) contemplate the possible inadvertent disclosure of privileged or work product information. Once the receiving party is notified this has occurred they must return, sequester or destroy all copies of the information at issue. The exception to this is providing a copy to the court under seal for determining the validity of the claim. Also, the receiving party has an obligation to make reasonable efforts to retrieve disseminated information.
The rules don't specify what constitutes privileged or work product information, so the basis for numerous discovery battles on these issues remain. Also, it is not clear, in the age of the internet, what constitutes reasonable efforts to retrieve information that has already been shared.
Rule 26(b) (2) sets forth a burden-shifting analysis for courts to use in deciding whether to compel production of electronically stored information. Since defendants in bad faith cases usually are the parties with the greatest number of potentially relevant electronic documents, they are most affected by the burden shifting rules. Insurance carriers have the affirmative responsibility to make a case against producing documents.
On motion to compel discovery ..., the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery. (Ameriwood Industries, Inc. v. Liberman, 2007 WL 496716 (E.D. Mo. Feb. 13, 2007))
The factors set out in the advisory committee's note to Fed. R. Civ. P. 26(b)(2) provide criteria for a court to review when deciding burden. These guidelines should be kept in mind when framing an electronic discovery request. They include:
(1) the specificity of the discovery request; (2) the quantity of information available from other and more easily accessed sources; (3) the failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources; (4) the likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources; (5) predictions as to the importance and usefulness of the further information; (6) the importance of the issues at stake in the litigation; and (7) the parties' resources.
House cleaning limits and the honor system
Document production battles have, in the past, frequently resulted in claims that documents have been "cleaned" or prior versions have been hidden or destroyed. Often Plaintiffs are relying on the "honor system" in taking defense counsels word that documents don't exist. While hiding of documents and after the fact destruction is not allowed, discovering that these violations occurred without the active cooperation of defense counsel and their client can be difficult. Intuition, common sense, discovery in prior cases and disgruntled former employees are the Ouija boards used to divine whether full disclosure has taken place. The new rules don't realistically solve the "honor system" dilemma. Judge Conti of the Northern District discussed the general 9th Circuit rule.
"While a litigant is under no duty to keep or retain every document in its possession once a complaint is filed, it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request.
The fundamental factor is that the document, or other potential objects of evidence, must be in the party's possession, custody, or control for any duty to preserve to attach. Indeed, to preserve means "to keep safe from injury, harm, or destruction." Webster's Third New International Dictionary (Unabridged), at 1794 (1976). One cannot keep what one does not have. Phillips v. Netblue, Inc., 2007 WL 174459 (N.D. Cal. Jan. 22, 2007) (citing WM. T. Thompson Co. v. General Nutrition Corp)
Horror stories due to the violation of the "honor system" revealed in discovery disputes should act as cautionary notes in the review of discovery materials. They can also be useful in the crafting of discovery requests to avoid problems. Many Plaintiffs counsel can relate to the discovery battle disaster discussed by District Court Judge Hochberg. Defendants' strategy was a concerted "scorched earth" litigation war that set honor on its head.
"Despite repeated document demands, repeated court orders to produce, and repeated assurances that all appropriate e-mails were being produced, thousands of Health Net's employees' e-mails were never searched. Many others were lost permanently due to Health Net's e-mail retention/non-retention practices, which were only disclosed to the Court after the conclusion of the Rule 37/Integrity hearing. These practices were never disclosed to the Magistrate Judge who supervised discovery for over three years. These non-compliant and deceptive discovery tactics caused Plaintiffs to waste huge sums of time and money conducting numerous depositions of Health Net witnesses without the benefit of their e-mails and other documents relevant to each deponent...."
...."The Defendants have harmed the Plaintiffs in this case by: (1) deliberately failing to timely search and produce responsive documents and thereby causing Plaintiffs to take scores of depositions and prepare their lay and expert witnesses for trial without the discovery that they had properly sought; (2) willfully concealing that no effective search was ever conducted for electronic documents; (3) deliberately causing Plaintiffs to conduct depositions hindered by an incomplete set of each deponents' documents, and causing Plaintiffs to prepare their case, including the summary judgment motions, without full discovery; (4) forcing Plaintiffs to seek Court intervention over and over again, wasting a huge amount of time and money in order to secure responses to their discovery requests when good faith compliance with the Federal Rules of Civil Procedure would have made such continuous costly intervention unnecessary; (5) employing a strategy of delay that has cost Plaintiffs inordinate amounts of time and money and has deprived them of the testimony of witnesses whose memories have faded in the years since this litigation began; and (6) concealing Defendants' non-compliance with discovery orders from the Plaintiffs by systematically ignoring adverse rulings." Wachtel v. Health Net, Inc., 239 F.R.D. 81 (D.N.J. Dec. 6, 2006)
The amendments to the FRCP won't eliminate this type of nightmare, but they do provide some additional tools and places some initial additional obligations on carriers and their counsel. Carriers are constantly changing the names for the type of documents they have been using for years. When framing E-discovery requests it remains important that you ask not only for the old characterizations of documents such as training manuals, procedure manuals, training guides, but also to keep in mind new names or categories for "the same old things". A manual kept electronically and distributed in sections or chapters might for instance be classified as "seminar material" or "instructional material". Claims documents should be requested in every possible format and form available. And ask for the documents to include metadata. And, if you still don't know what that means check with a computer or E-discovery expert (or your kids).
New avenues for valuable E-discovery are being created daily. Companies are spending millions to keep corporate email safe while employees are forwarding their office email to email accounts at Google, Yahoo and others. The E-discovery issues are dynamic and opportunities for discovery are available for attorneys who understand the new environment.
Lee S. Harris is a partner at Goldstein, Gellman, Melbostad, Harris & McSparran based in San Francisco including the North and South Bay Areas. He has represented injury and insurance clients in numerous disaster claims. He has also served as chair of the American Association for Justice, Insurance and Bad Faith Litigation groups and serves on the board of Consumer Attorneys of California.