The data-management needs of the insurance industry are multifaceted and always evolving. There is a constant challenge to simplify the complexity of data management for a variety of purposes and requirements.

Yesterday's need for data-quality checks and balances is now a much more sophisticated predicament. Data management has become a mission-critical aspect of business operations, touching on all facets of an insurance enterprise.

It is no longer sufficient for insurers to manage only statistical and financial data. E-mail and the protection of personally identifiable information are among the challenges faced by the industry today.

Adding to those growing concerns is the issue of e-discovery: the process by which a company is required to produce electronic documents to defend its position or advance its case in a court of law.

E-discovery has moved into the spotlight in recent months because of the December 2006 revisions to the Federal Rules of Civil Procedure. Those revisions affect many aspects of the FRCP, but one change in particular is leading organizations to change the way in which they manage information.

Specifically, the amended rules require the parties in any civil dispute in federal court to meet early in the case to discuss issues relating to electronically stored information (ESI) in their possession.

These early discussions now touch on the steps that have been taken to preserve ESI, the form in which ESI will be produced, and relevant ESI that is “not reasonably accessible because of undue burden or cost.” Similar requirements have been enacted or are being considered in many states.

In the past, parties to a dispute were not required to participate in an early discussion relating to ESI. Historically, the majority of lawsuits were settled before disputes about the production of electronic documents needed to be resolved.

There were not many e-discovery cases, but the new early discussion requirements arguably turn almost every new civil proceeding in federal court into an e-discovery case. Early discussion of ESI has not happened in every federal civil case that has commenced since December, but the tolerance of some judges for lawyers who do not raise the issue is probably short-lived.

In addition to the requirement that your trial counsel be able to intelligently discuss your relevant ESI early in a proceeding, your preservation obligations have become much more demanding.

Under case law prior to the amendments to the FRCP, preservation obligations are triggered not when the case is filed but when probable. Both the early discussions and the preservation requirements can be very burdensome to the law department that does not have clear processes and protocols for responding in place.

Corporate legal departments–together with other disciplines that support enterprise data, such as information technology and data management–must take action and assemble a great deal of information quickly when a dispute arises.

This is where advance planning can help: A coordinated, controlled, enterprise-wide program for data management is an important part of readiness for e-discovery and can save a company significant time and money.

E-discovery obligations can be outsourced, but doing so is expensive. Moreover, exceptional or event-related outsourcing expenditures tend to result in very limited process benefits.

Typically, outsourcing e-discovery does not improve an organization's records-management program. Fortunately, many organizations are recognizing that every lawsuit is now likely to implicate their electronic information, and that the new rules offer opportunities to better manage litigation.

This is especially important for insurers that manage tens, hundreds or even thousands of cases that are similar in terms of the sources of ESI involved.

As a result, insurers are rapidly getting up to speed on those requirements. In doing so, carriers are changing the role of legal representation, as well as the relationship among legal departments and the disciplines involved in the management or support of their data and systems.

Corporate attorneys have always had to focus on the facts and the law, but because of the changes to the FRCP, they now also have to focus on the management of the electronic data made relevant by any dispute. Often, a company's legal team needs to work closely with its IT staff and data and records managers to effectively find, store and manage a huge inventory of electronic information that's potentially pertinent to the case.

For many reasons, savvy organizations should link their records-management program to their e-discovery readiness initiatives.

First, the FRCP amendments further increase the risks associated with failure to consistently operate a records-management program. This issue was brought to national attention by the document shredding that precipitated the demise of Arthur Andersen.

It was then generally magnified by the greater volume, redundancy, widespread dispersion and dynamic character of electronic messages and other e-documents–especially as compared with paper.

In its “safe harbor” provision, the amended FRCP now 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.

Consequently, 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 gradual move toward new organizational structures and technologies accelerates the risks associated with records-management issues. The people, processes and technology necessary to manage ESI in records-management programs are similar, if not identical, to those necessary to manage e-discovery effectively.

For example, functions such as data searches, deduplication and authentication are equally essential in both areas.

Designation of document coordinators in various divisions of a diversified organization–as well as compliance-related controls such as training, auditing and enforcement–is also critical to management of both records and e-discovery.

However, the third and largest impact of the amended rules on records management may be the future development of the “reasonableness” analysis that is the foundation of those amendments. This is 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 the data restoration is difficult enough to be excluded from production because the information store is “not reasonably accessible” under the amended rules. However, the amended FRCP does nothing to make preservation obligations more reasonable.

For example, by 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.

Widespread transformations of ESI and the often painful litigation experiences of organizations–including insurers–mean that a coordinated, controlled, enterprise-wide program for data management is an important facet of being prepared for e-discovery.

Special Reports /

Fed E-Discovery Rules Challenge Insurers

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