Canadian Underwriter
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E-Discovery for Insurance


January 31, 2008   by Antoinette Duffy & Oleh Hrycko


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A litigation readiness plan will streamline process

What is E-Discovery?

E-discovery, or electronic discovery, refers to any process in which electronic data is sought, located, secured and searched with the intent of presenting that data as evidence in a civil or criminal proceeding.

ESI, or electronically stored information, is information stored in an electronic medium and is retrievable in a comprehensive form. There are a number of different types of ESI including computers, servers, backup media, such as tapes, external hard drives, CDs, DVDs, floppy disks, thumb drives, etc., MP3 players, BlackBerries or other PDAs, iPods, gaming consoles and the Internet.

How are businesses affected by ESI?

Currently, 95 per cent of all business records are in electronic format which levies tremendous pressure against Canadian businesses to organize and preserve data. Companies large and small are required to develop policies to deal with the increasingly large volumes of data that were once routinely deleted without much thought by business owners and employees. In this litigious era, and with the advent of e-discovery, the legal requirements for document preservation are much more complicated and can carry severe sanctions when businesses are found to be negligent in their preservation of ESI.

Companies need to draft policies on how to manage electronic data, including storage, routine purging and deletion, back up and easy retrieval, end user access practices and storage restrictions to ensure they are compliant with the current e-discovery principles, or more commonly referred to as the Sedona Canada Principles. These principles are in draft format; however they are quickly being adopted by lawyers, judges and other members of the legal community as the guiding authority in dealing with current e-discovery issues in Canada.

What are the Sedona Canada Principles?

These principles were drafted by a volunteer group of lawyers, judges and legal community members that govern how e-discovery should be conducted. Sedona Canada defines these guidelines as: Forward looking principles and best practices recommendations for lawyers, courts, businesses and others who regularly confront e-discovery issues in Canada. The group will follow these principles and recommendations with examples and discussion to assist lawyers, courts and others involved to apply them to particular facts and situations they may encounter.

The following 12 principles have been drafted by Sedona Canada to assist counsel, judges and businesses to navigate the unchartered waters of e-discovery:

The 12 Principles

• Definition of ESI

• Proportionality

• Meet and confer

• Preservation of ESI

• Cost and burden of producing ESI

• Producing relevant ESI

• ESI selection and analysis tools

• Format of production of ESI

• Treatment of privilege/ onfidential ESI

• Discovery process involving ESI

• Sanctions for failure to roduce relevant ESI

• Costs of preserving, collecting and reviewing ESI

One of the more important principles for businesses to consider is the preservation of ESI once a claim has been brought against a company.

Preservation of ESI

Principle four from the Sedona Canada Principles, states:

As soon as litigation is reasonably anticipated, parties must consider their obligation to take reasonable and good faith steps to preserve potentially relevant electronically stored information, within their businesses and/or homes.

Best practices and litigation risk management recommend a detailed, hands-on approach to issue a preservation notice. Persons within a company must be given notice to stop the routine records retention destruction procedures of potentially responsive information that may be relevant to a legal proceeding.

Most companies will issue a one-time communication to employees ordering all relevant documents be preserved and consequently, these companies wrongly believe that a one-time communication is sufficient. This practice does not ensure all responsive records are protected and the purpose of the hold is to preserve documents on a reactive as well as a proactive basis. In addition, there must be an audit to ensure the hold is compliant and requires the cooperation of four specific corporate areas: in-house counsel and legal, business unit executives and managers, IT department and custodians.

The notice must alert employees of the risk to them and the company if relevant documents are destroyed. The hold/preservation applies to all documents and files. Email in both electronic and paper form and the failure to halt routine deletion of company records will cause unwanted consequences such as spoliation, court sanctions and adverse inference. The consequences are specifically addressed by Principle 11 of the Sedona Canada Principles, where:

Sanctions should be considered by the court where a party will be materially prejudiced by another party’s failure to meet any obligation to preserve, collect, review or produce electronically stored information. The party in default may avoid sanctions if it demonstrates the failure was not intentional or reckless.

The courts in Canada have levied sanctions against companies where they have not

Skrobutan — the Court ordered an injunction restraining the defendants from ccepting business from the plaintiff’s customers until trial. The Court held there was strong evidence that the two fiduciaries attempted to destroy evidence of their pre-resignation activities by deleting information from their work computers, and based on this, drew a negative inference they engaged in direct solicitation of the plaintiff’s customers before they left their employment, seriously damaging their defence.

Veltheer v Prachnau— deleted material which may still have been required. In this matter, the defendants were ordered to retrieve the deleted data and produce it to the plaintiff in a comprehensive format.

However, Canadian businesses can circumvent these potentially damaging results by creating and implementing a litigation readiness plan. nstituted litigation hold policies.

These include:

Spar Aerospace Limited v. Aerowerks Engineering Inc — he Court granted an Anton Piller order in favour of the plaintiff, acknowledging there was a real threat records would be destroyed by the defendant. The consequence being that the defendant was put to the additional expense of reproducing all records in a comprehensive electronic format.

Western Tank & Lining Ltd. v. The successful implementation of a proactive electronic discovery response plan — a litigation readiness plan — will significantly streamline the identification, preservation, and production of potentially relevant electronic documents. This proactive approach is the most efficient, cost-effective and, perhaps most importantly, is minimally disruptive to the business. The end result is a defensible process which will efficiently respond to today’s litigation and regulatory compliance environment.

Consequently, litigation readiness is critical to doing business successfully. Corporations who do not effectively manage their enterprise-wide content in terms of record classification, retention policies, etc. are exposed to significant corporate risk. Litigation readiness is about understanding these risks proactively and knowing what must be done in order to avoid them.

What does e-discovery mean for the insurance industry?

Insurance companies are the most litigated industry, suggesting that the insurance industry needs to be more prepared to handle the heavy burden of litigation. The Sedona Canada Principles encourage parties involved in litigation to meet and discuss issues related to ESI — including emai
l. Insurance companies need to ensure they have a records management system that allows for quick retrieval of relevant data in a comprehensive format.

Insurers need to build record retention policies to quickly and cost-effectively review and analyze terabytes of information with little notice. More importantly, insurers need to have a set of policies in operation to ensure they do not destroy information that could be relevant in future litigation. The challenge for insurers is the demand on internal resources and juggling the changes in priority to other profitable business projects.

The Sedona Canada Principles acknowledges that evidence is more likely to be found in an email rather than in hard copy due to the sheer volume of emails sent and received. With the proliferation of email, insurance companies that do not archive email will waste time and resources locating and retrieving relevant ESI when litigation arises.

Independent adjusting firms are not excluded from these principles and have the same obligations as large insurance companies to preserve and produce ESI. Independent adjusting firms need to create ESI retention policies, create litigation readiness plans and issue preservation holds on data that may be responsive to a potential claim.

Insureds, when applying for director and officer’s insurance as an example, will be asked about records retention system and the ability or inability to provide details of these programs, which may be reflected in the insurance premium paid for D&O insurance.

Insurers are also being proactive, with the help of outside counsel, to collect and analyze an insured’s computer for relevant ESI. For instance, in Ireland v. Low and Prichard v. Crosfield, the Court made the following decisions:

Ireland v. Low, 20063– The defendants sought an order for the plaintiff to produce deleted files that are easily retrievable. The documents were sought to show the plaintiff’s ability to work at the computer given his personal injury claims. The defendants proposed taking a copy of the hard drive and have an expert make a list of all documents on the drive. The plaintiff was ordered to deliver an affidavit verifying the list of documents and for that purpose expressly state that he had reviewed his computer’s recycle bin and all folders associated with his email program on his computer.

Pritchard v. Crosfield— The defendant sought an order for the production of ESI in a comprehensive format. The plaintiff was suffering from an alleged closed head injury with subsequent cognitive and neurologic deficits. The plaintiff, although prepared to produce all work produced from home on the computer as it relates to the business, was not prepared to produce personal emails or internet searches. The application to have an expert retrieve all information on the hard drive, including all active and deleted ESI, was held as an invasion of privacy and the application was dismissed.

Conclusion

The landscape of litigation in Canada has been morphed by the prolific nature of ESI in the course of everyday business. In an effort to wrestle the information giant, e-discovery practices carved out of the Sedona Canada Principles are being looked to for guidance by the legal community at large and are quickly becoming the authority on this topic that legal professionals look to for assistance.

Canadian businesses, including insurance companies, that have adapted to this changing landscape are better able to respond to the demands of e-discovery, in a better position during the litigation lifecycle and can significantly reduce the cost of litigation on their operating budgets. Those businesses that have an active litigation readiness plan and a clear, pragmatic approach to the preservation of data are the real winners in the dynamic world of e-discovery.

Oleh Hrycko is the founder and president of H&A Forensics, a total forensic solution provider of electronic discovery, computer forensics and forensic accounting services. He has authored the book, Electronic Discovery in Canada: Best Practices and Guidelines.

Antoinette Duffy is the Senior Manager, Litigation Support for H&A Forensics Inc. She is a co-lecturer for the Institute of Law Clerks of Ontario’s Electronic Discovery and Computer Forensic Fellowship course, corporate trainer and a strategic consultant on e-discovery matters.

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The landscape of litigation in Canada has been morphed by the prolific nature of ESI in the course of everyday business.


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