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E-Discovery: A Way To Paperless Organization
April 1, 2008Uncovering the best way to manage documents and electronically stored information (ESI) is of the utmost importance to insurers. Document management affords a company many benefits but lately, separating itself from the chaff is its role in electronic discovery (e-discovery), which involves the access and use of information and data created or maintained in electronic form for the purpose of lawsuits.
Released late last year, international law firm Fulbright & Jaworski LLP’s annual U.S. Litigation Trends survey found that 93% of insurance companies faced at least one new lawsuit in the past year, with 33% facing more than 20 new actions and 54% of American insurers reported facing at least one $20 million suit. In addition to this, the report states that 79% of insurance companies filed at least one suit themselves in the past year acting as plaintiff, with 28% of the suits seeking in excess of $20 million.
The key to insurers dealing with such legal action is the discovery process—the period of time when the company is asked to produce all relevant documentation and turn it over to counsel. This stage is critical, as the proper document management system will enable faster search, recovery and transference of ESI, but without the proper solution, or if done incorrectly, can lead to serious consequences. Take, for example, the story of Bahamas-based Phoenix Four Inc. According to Atlanta-based attorney Jon Neiditz, the investment company was asked to produce documentation for a lawsuit it filed against Strategic Resources Corp. (SRC), an investment adviser and Phoenix’s client. SRC told its insurer in 2004 it had a dispute with Phoenix, at which point Phoenix stopped all payments to SRC, resulting in the cessation of SRC’s operations. Shortly thereafter, SRC delivered all paper records and electronic documents to Phoenix, leaving behind marketing documents, old prospectuses, trade publications and numerous computers, which the landlord sold.
Phoenix filed suit against SRC in May 2005, and counsel asked Phoenix to produce all relevant electronic and paper documentation. Phoenix said it found no electronic documents and advised its counsel none existed. On the eve of the trial a year later, after close of the discovery period, electronic documents were found behind a hidden partition on SRC’s old server, which the landlord had kept. Phoenix notified its counsel, which, in turn, notified the opposing counsel. In the end, the judge found Phoenix guilty of gross negligence in the discovery process — saying they needed to push harder and scour for all electronic documentation — and leveled monetary sanctions against both Phoenix and its counsel.
“What it came down to was Phoenix represented that there were no computers or electronic collections to search because SRC was out of business,” Neiditz explains. “But later, when this information came out, the court said that counsel had a duty to ask what happened to the computers and to investigate further. Because they didn’t, both the company and the lawyers were seriously sanctioned.”
While this is a worst-case example of what can happen to companies facing the prospect of e-discovery, it’s something insurers should keep in the back of their minds, especially when it comes to facilitating discovery and choosing the right system to manage its documents.
NO PAPER, NO PROBLEM?
A report from Forrester Research Inc., Cambridge, Mass., in late 2006 projected that spending on e-discovery technology will grow from $1.4 billion in 2006 to more than $4.8 billion in 2011 as enterprises realize that they have no choice but to prepare for e-discovery. This makes the task of finding a document management system that addresses e-discovery extremely important for every carrier.
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