THE DATA ADMINISTRATION NEWSLETTER – TDAN.com
ROBERT S. SEINER – PUBLISHER

Published in TDAN.com February 2007

The data and information management needs of the insurance industry are varied, complex and always evolving. There is a constant challenge to manage more data and more information in more complex ways, for a variety of purposes and requirements. What once may have been simply a need for data quality checks and balancing is now a sophisticated, critical aspect of the business, touching all aspects of an insurance company enterprise. It is no longer sufficient to manage just statistical and financial data. Issues such as dealing with email and other unstructured data and protecting personally identifiable information are among the challenges faced. E-discovery is another, further expanding how data and information must be managed and who needs to use it and have access to it.

To explore the impact of e-discovery and the related changes to the Federal Rules of Civil Procedure on information management by insurers, I talked with Jon Neiditz of Lord, Bissell & Brook, who has helped more than fifty insurers and reinsurers adjust to the amended rules and deal generally with e-discovery.

Aimee Siliato: Is it just ominous consultant talk to say that changes to the Federal Rules of Civil Procedure will change the way in which companies manage information, like saying Y2K would bring the world to a halt?

Jon Neiditz: The amended rules require the parties to any civil dispute in federal court -- and you can expect similar changes in state courts -- to meet early in the case to discuss issues relating to electronically stored information ("ESI") that both sides have, including steps that will be taken to preserve ESI, the form in which ESI will be produced, and relevant ESI that they do NOT intend to produce because it is "not reasonably accessible because of undue burden or cost.". Since the great majority of all suits were settled before disputes about production of electronic documents needed to be resolved, and since lawyers weren't eager to discuss issues unique to electronic documents, there weren't that many e-discovery cases, but the new early discussion requirements make EVERY case into an e-discovery case by requiring those early discussions. In addition, under case law prior to the amendments to the FRCP, you have preservation obligations not from the time the case was filed but from the time the dispute became reasonably likely.

So legal departments, together with other disciplines that support the enterprise data such as IT and data management, must take many actions and assemble a great deal of information quickly when a dispute arises. They can outsource every one of those obligations, but doing so is expensive. Moreover, those event-related expenditures tend to result in very limited process benefits, so it is almost as expensive next time. Finally, outsourcing e-discovery does nothing to fix the organization's records management program, which should be integral to e-discovery readiness. A coordinated, controlled, enterprise-wide program for effective data and information management is an important part of readiness for e-discovery.

Fortunately, many organizations recognize that in making every lawsuit about their electronic information, the new rules offer new opportunities to better manage litigation. And for whom could the opportunities be greater than for insurers that manage tens, hundreds or thousands of cases that are similar in terms of the sources of ESI involved? That is why insurers are rapidly getting organized in this area, and in so doing changing the role of the lawyer and the relationship among their legal departments and the disciplines involved in the management and support of the data and systems. Lawyers always had to focus on the facts and the law; now they will have to focus also and increasingly on the management of the electronic data made relevant by any dispute.

Aimee Siliato: Why do you say that an organization should tie its records management program to its e-discovery readiness initiative?

Jon Neiditz: Three reasons, two of them already apparent, and one just appearing on the horizon. First of all, the amendments to the FRCP further increase the risks associated with failure to operate a records management program consistently. This issue was brought to the national attention powerfully by US v. Arthur Andersen, and then magnified by the greater volume, redundancy, widespread dispersion and dynamic character of electronic messages and other e-documents as compared with paper. Now the amended FRCP, in its so-called "safe harbor" provision, 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. 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 movement toward new organizational structures - in which the heightened risks associated with records management issues are recognized - and new technologies is only accelerated. The people, processes and technology necessary to manage ESI in records management programs are similar if not identical to those necessary to effectively manage e-discovery. For example, functions such as search, organization, de-duplication and authentication are equally essential in both areas, as are the designation of document coordinators in the various divisions of a diversified organization and compliance-related controls such as training, auditing and enforcement. Again, a coordinated, controlled, enterprise-wide program for effective data and information management is an important part of being ready for e-discovery.

The third and largest impact of the amended rules on records management, however, may be in the future development of the "reasonableness" analysis that is the foundation of those amendments, 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, becoming harder to decipher or restore with each passing year, perhaps hard enough to be excluded from production as "not reasonably accessible," but never excluded from preservation obligations and always growing. Using a "reasonableness" test to determine whether or not one has reason to believe that information in those information stores may be subject to preservation requirements, 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. More transformation of the role of the lawyer by e-discovery may be necessary before trust levels are sufficient for such a process to become accepted.