Ask the Expert: Michael Nelson
This month’s featured expert:
Michael Nelson
Chairman, Nelson Levine de Luca & Horst
Background:
Michael R. Nelson is Chairman of NLdH. Nelson concentrates his law practice on complex insurance matters, insurance class actions, insurance regulatory matters, reinsurance, and bad faith/extra-contractual claims. He analyzes insurance coverages and defends claims in matters involving complex coverages, such as construction defects, environmental matters, director and officer liability, errors and omissions, automobile, and life/health/disability. He has represented insurance companies in matters of complex litigation in multiple jurisdictions throughout the country.
Nelson brings his expertise in insurance matters and corporate defense work to organizations, such as the Insurance Federation of Pennsylvania, the Federation for Defense and Corporate Counsel, Lawyers for Civil Justice and the Defense Research Institute. He is frequently asked to speak before insurance industry trade groups, such as the Property Loss Research Bureau, the International Association of Special Investigation Units, the Defense Research Institute and the Property Casualty Insurers Association of America. He has testified in Washington, D.C. concerning amendments to the Federal Rules of Civil Procedure on class actions and electronic discovery. He also proactively addresses regulatory issues on behalf of the insurance industry by regularly attending conferences and providing commentary before the National Association of Insurance Commissioners. Prior to becoming a lawyer, Mr. Nelson worked for eleven years for MetLife’s Property & Casualty Company in its King of Prussia, Pennsylvania office.
Interview Focus:
E-Discovery & The Insurance Industry
Questions:
- What are some best practices for insurance companies in preparing for potential litigation and e-discovery, especially when facing multi-state regulations?
In order to adequately prepare for potential litigation involving e-discovery, insurance companies need to implement internal practices designed specifically to ensure compliance with discovery obligations. Ideally, some insurers have established a “Discovery Unit” to manage, oversee and enforce these practices, and ensure internal accountability when practices are not properly implemented or followed. Business practices insurance companies are embracing to ensure compliance with discovery obligations include a plan for suspending document destruction policies for documents containing relevant accessible evidence (and relevant inaccessible evidence unavailable from any other source) and a method to send “key employees” who may possess relevant documents a preservation letter informing them of their obligation not to destroy such material. These notices usually point out the possible penalties for failing to comply with their mandate. Once the employees are made aware of their obligations, insurers should discuss the best protocol to use to collect the material and maintain chain-of-custody information relating to the documents retrieved. Insurers should also discuss procedures to follow up with key employees on a regular basis to ensure ongoing compliance.
Once documents are collected, insurance companies, possibly in coordination with outside counsel, should implement a protocol to search and review the documents retrieved for relevance and privilege. This protocol should include an analysis of the opposing party’s allegations and discovery requests as well as establish a methodology to determine which company personnel listed on the documents were acting as attorneys on the company’s behalf. Finally, insurers should also ensure that the native electronic files of the relevant documents are available for production, since courts sometimes require such productions under certain circumstances.
An important preventative step in preparing for litigation involving e-discovery requires that insurers confirm that their document retention practices meet regulatory requirements. Where in the past, regulatory retention requirements focused on retaining documents for a specific period of time, new requirements now mandate the destruction of personal consumer information once a business decides that it will no longer maintain those records. Because of the now competing retention / destruction interest, insurer evaluation of retention practices is an important step in preventing possible allegations of regulatory violation both from a non-compliance and spoliation standpoint.
- .What steps should insurance companies consider taking to ensure their records management policies account for both regulatory compliance and litigation needs (destruction vs. retention)?
In terms of regulatory compliance, insurance companies should evaluate their ability to implement document retention practices in line with the regulations of different states. In addition, insurance companies should also evaluate the ability of their retention systems to place a destruction hold on documents potentially relevant to anticipated litigation. Reconciling these diverse requirements can be a difficult task for any insurer and normally requires a well-staffed technology department capable of implementing these protocols. In order to avoid an overabundance of email retention, insurance companies should put into practice policies to reduce unnecessary email usage. Furthermore, these policies should also seek to reduce improper email communications that could compromise the company’s position in litigation. In order to ensure compliance with all of the above retention requirements and email protocols, companies need to consider making data management practices a business initiative that is evaluated along with other aspects of an insurance company’s performance.
- How can technology help or hinder the process?
Technology both aids companies in leveraging business knowledge and hinders them by breeding complex document retention requirements. As technology advances, new products enter the market, displacing older ones. This leads to the retirement of legacy systems needed to view older data. A company that finds itself in litigation where data from those legacy systems is clearly relevant could be put to great burden and expense to retrieve the information. Furthermore, opposing counsel in some cases has successfully required an insurer to produce documents in native format as opposed to a unitary one such as pdf. For companies that need to produce thousands of files, this makes the review process extremely expensive and cumbersome as multiple programs are needed to view the numerous file types used in business today.
- How should insurance companies address records retention issues for e-discovery when working with outsourced vendors?
When utilizing outsourced vendors, insurance companies need to keep in mind that chain-of-custody requirements should be met when providing data for processing. Ideally, companies should either attempt to include such a feature in their retention system (allowing it to track information sent to a vendor) or have the vendor track the information for them. Companies should ensure that the relationship between the parties, including each party’s respective role, is clearly defined. Because courts have sometimes, under certain circumstances, required that the parties produce metadata, insurers should evaluate vendors on their ability to process and retain such data. If a vendor actually stores company documents, the insurer and vendor need to agree on what format they must be kept.
- What are some steps insurance companies must do now to prepare, especially in light of the new Federal Rules amendments?
In order to prepare for discovery requests, insurance companies should ensure that their legal and technology departments have a clear understanding of accessible and inaccessible documents, as well as the systems on which data is stored. In a typical business environment, some of this information is vested in legal and some is vested in systems. Where this is the case, the departments need to communicate coherently with each other in order to define the scope of the company’s discovery obligations. The new Federal Rules amendments governing electronic discovery are now aiding legal and technology departments in defining the required scope of retention by protecting the company against the inadvertent destruction of possibly relevant information when such destruction occurred as part of the company’s normal document destruction policies. However, if a court orders the preservation of particular information, the company must be prepared to halt destruction of all information covered by the order.
Insurance companies should also examine their retention policies from a top-down and bottom-up perspective. Typically, companies focus heavily on a top-down view, which concentrates on implementing compliance standards, but does not ensure that employees are actually obeying those mandates. In litigation, retention policies are typically viewed bottom-up, where courts look at the failure of employees to follow certain retention policies as a failure to implement adequate compliance measures. Essentially, a retention program is not complete until a top-down and bottom-up view reflects a meeting of corporate practice with actual business practice and takes into consideration an ever-changing environment.
Filed under From the Experts.