Under new rules, bytes of electronically stored info could have big bite

Insurance agents want to avoid litigation, but it is not always possible. When they become involved in litigation in federal court, it is important for agents and their attorneys to understand the new Federal Rules of Civil Procedure governing electronically stored information (ESI). The rules went into effect on Dec. 1, 2006, and apply to all cases filed after that date, as well to all pending cases to the extent “just and practicable.”

Understanding these new rules is important because much of an agent’s work is done on computer and transmitted electronically. Most contacts with clients and insurers are probably done electronically (Web sites, applications, e-mail, transaction databases), and computerized records are increasing all the time. Also, there are more types of ESI (databases, Web pages, digitally stored voice mail) and increasing options for storage (servers, Web sites, laptops, notebooks, personal digital assistants, removable media). The amended rules cover the following six areas relating to ESI.

1. Definition of discoverable material

The new amendments introduce the phrase “electronically stored information” to acknowledge that electronically stored information is discoverable. The expansive phrase is meant to include any type of information that can be stored electronically. It is intended to be broad enough to cover all current types of computer-based information, yet flexible enough to encompass future changes and technological developments.

2. Early attention to electronic discovery

The amended rules require the parties to address ESI early in the discovery process, recognizing that early attention is crucial to controlling the scope and expense of electronic discovery and avoiding discovery disputes.

Rule 26(f) expands the list of issues that must be discussed as a part of the early meet and confer process by the parties.

Rule 16(b)(5) adds discovery of ESI as an item that may appropriately be included in the court’s scheduling order.

To participate meaningfully in early discussions regarding ESI, agents and their attorneys must first have a basic understanding of the agent’s computer systems. There are many issues to consider, including:

• For personal computers, what operating systems are used? What e-mail client? Productivity software? Browsers? Instant messaging?

• What e-mail servers are used?

• Is there a janitorial system for e-mail or a “sweep and keep” policy?

• How are servers organized? By office? By type of data?

• How are file shares on the servers structured? By users? By department, product, service?

• Are internal Web sites used? Collaboration tools? Extranet?

• What voice mail system is used? Is it Internet protocol-enabled? Unified messaging?

• What type of portable devices, including handhelds and removable media, are used?

• What offsite storage locations are used for electronic documents? Is there any third-party hosted data? Outsourcing?

• Can employees save files, e-mails or other data to their desktop or laptop hard drives?

• What are the backup and disaster recovery policies? How often are servers backed up? Is there a policy for recycling recovery media?

• Is there long-term storage for electronic document retention?

• Are employees’ local drives backed up? Is it possible for employees to save documents on their personal computers or laptops?

• Do e-mail backups include items in employees’ sent or deleted folders?

• What happens when an employee leaves?

If that seems like a lot to discuss, it is. But the new rules require a higher level of understanding of information technology systems. Like anything in life, the more one knows, the better prepared one will be.

3. ESI from inaccessible sources

Some ESI is not reasonably accessible. Under the amended Rule 26(b)(2), a responding party does not need to produce ESI from sources that it identifies as not reasonably accessible because of undue burden or cost. In that case, the responding party must identify the potentially responsive information that it is neither searching nor producing. If the requesting party moves to compel discovery of this information, the responding party would be required to show why the information is not reasonably accessible. Once that showing is made, a court may order discovery only for good cause.

Again, understanding the capabilities of the agent’s computer system and having a policy governing how, when and what information is stored is critical.

4. “Safe harbor”

Rule 37(f) states that, absent exceptional circumstances, a court may not impose sanctions on a party for failing to provide ESI lost as a result of the routine, good-faith operation of a system. Good faith in the routine operation may involve modifying or suspending certain features to prevent the loss of information, if that information is subject to a preservation obligation. A party cannot use the routine operation of a system to destroy ESI that it should preserve. The agent must understand what ESI the agency’s system will automatically delete and modify by routine operation in order to comply with good faith operation.

5. Format of production

Rule 34(b) addresses the format of production of ESI, and would permit the requesting party to designate the form or forms in which it wants ESI produced. The rule does not require the requesting party to choose a form of production. The rule provides that if a request does not specify a form of production, or if the responding party objects to the requested form(s), the responding party must notify of the form in which they intend to produce the electronically stored material — with the option of producing either in a form in which the information is ordinarily maintained (its native or application electronic format), or in a reasonably usable form (generally meaning being searchable electronically).

6. Asserting claim of privilege or work product protection

Rule 26(b)(5) created a procedure through which a party who has inadvertently produced trial preparation material or privileged information may nonetheless assert a protective claim as to that material. The pending rule provides that once the party seeking to establish the privilege or work product claim notifies the receiving parties of the claim, the receiving parties must return, sequester or destroy the specified information.

Knowing is half the battle

The amended Federal Rules of Civil Procedure are a call for agents to become better informed about their IT capabilities. Given the sheer volume of electronic documentation that insurance agents work with, it is essential for agents and their attorneys to understand how their computer systems operate to properly handle ESI under the amended Federal Rules of Civil Procedure. When agents and their counsel are comfortable with such information, they will be equipped to handle legal requests for ESI. The best time to start that education process is now. As always, forewarned is forearmed.

Todd Nunn is a partner in the business litigation practice in the Seattle office of Preston Gates & Ellis LLP. Nunn’s practice emphasizes class action defense, complex document production and electronic discovery, insurance coverage and constitutional law. Phone: 206-623-7580. E-mail: toddn@prestongates.com.

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