How will changes in federal rules on e-discovery affect insurers? To find out, Insurance Networking News talked with Jon Neiditz, an attorney with Lord, Bissell & Brook. Neiditz has helped more than thirty insurers and reinsurers adjust to the amended rules.INN: How will the Federal Rules of Civil Procedure (FRCP) alter the way companies manage information?
JN: The amended rules require the parties to any civil dispute in federal court—and you can expect similar changes in state courts—to meet early in the case to discuss issues relating to electronically stored information (ESI). Topics are to include steps to preserve ESI, the form in which ESI will be produced and relevant ESI that they do not intend to produce because it is "not reasonably accessible because of undue burden or cost."
INN: Do precedents apply?
JN: Not much for these early meetings, except as a few judges have anticipated the new rules. Until now, there weren't many e-discovery cases because most suits were settled before disputes about electronic documents needed to be resolved. Also, lawyers weren't eager to discuss issues unique to electronic documents. But the new early discussion requirements make EVERY case an e-discovery case by requiring those early discussions. In addition, under case law prior to the amendments to the FRCP, preservation obligations do not start when the case was filed but instead begin at the time when the dispute became reasonably likely.
So law departments and IT departments must take action, assembling a great deal of information quickly when a dispute arises. They can outsource every one of those obligations, but doing so is expensive. Moreover, those event-related expenditures tend to result in limited process benefits, so it is almost as expensive the next time. Finally, outsourcing e-discovery does nothing to fix the organization's records management program, which should be integral to e-discovery readiness.
Fortunately, many organizations recognize that in making every lawsuit about their electronic information, the new rules offer opportunities to manage litigation better. The opportunities could not be greater than for insurers that manage tens, hundreds or thousands of cases that are similar in terms of the sources of ESI involved. That is why insurers are rapidly getting organized and changing the relationship between their legal and IT departments and the role of the lawyer. In the past, lawyers had to focus on the facts and the law; now they also have to concentrate on information technology, which has become relevant in any dispute.
INN: Should insurers tie a records management program to an e-discovery readiness initiative?
JN: Three reasons-two of them already apparent and one just appearing on the horizon. First, carriers that fail to operate a records management program consistently can increase their risks. That issue was brought to national attention powerfully by U.S. v. Arthur Andersen, and then magnified by the greater volume, redundancy, widespread dispersion and dynamic character of electronic messages and other e-documents as compared with paper. Now the amended FRCP, in its so-called "safe harbor" provision, offers limited protection when ESI no longer exists: Absent exceptional circumstances, discovery sanctions may not be imposed if ESI has been lost as a result of the "routine, good faith operation" of a computer system. Consistent and appropriate records management operations are now becoming a cornerstone in the plans of many organizations to establish "good faith" for purposes of that provision.
Second, the movement is accelerating toward new technology and new organizational structures that recognize the heightened risks associated with records management issues. The people, processes and technology necessary to manage ESI in records management programs are similar to those needed to manage e-discovery effectively. For example, functions such as search, organization, de-duplication and authentication are essential in both areas, as are the designation of document coordinators in the various divisions of a diversified organization and compliance-related controls, such as training, auditing and enforcement.
The third and largest effect of the amended rules on records management, however, may be in the development of the "reasonableness" analysis that is the foundation of those amendments. It's a type of analysis unfamiliar to records management but ideally suited to the challenges of electronic documents. Consider, for example, the intractable problem of legacy information stores that become harder to decipher or restore with each passing year. Perhaps they're not bad enough to be excluded from production as "not reasonably accessible," but they're never excluded from preservation obligations and their numbers are always growing.
Using a "reasonableness" test, followed by a cost-benefit analysis in which the benefit is the value of such ESI to a prospective opponent, and culminating in targeted restoration efforts, one might succeed in turning a huge collection of useless ESI into an accessible store of potentially relevant information. Transformation of the role of the lawyer by e-discovery may be necessary before trust levels are sufficient for such a process to become accepted.
