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Underwriting e-Discovery Risk with ECA in the Insurance Industry

Dean Gonsowski

Originally published in early 2016, this post highlights some important considerations for professionals in an industry that helps protect our everyday economy. It continues to get attention today, so we're republishing it in case you'd like to take another look.

Property insurance keeps our business and personal lives afloat. The common risks we take to go about our everyday lives—the risk that our home will be burglarized, for example, or that we'll cause a car accident on our way home from work—could be catastrophic if we didn’t have policies in place to protect us from the consequences when those risks come to fruition.

This places an incredible burden on the insurance companies that stand behind those policies. As a highly regulated business with a range of risks and different constituents, most insurance companies have to be comfortable living with the correspondingly complex and frenetic world of e-discovery.

Living in the litigation crosshairs can put a lot of stress on an e-discovery process that’s already rife with potential sanctions and spoliation. Many insurance companies have turned to early case assessment (ECA) as a way to bring order to the e-discovery chaos that’s part of everyday life.

Coverage Complications

According to an article in Bloomberg BNA, coverage disputes make for a trying e-discovery environment for two big reasons: much of the discoverable data rests with the policyholder, and privilege concerns inherent to the contractual relationships between insurer and insured can complicate disclosure between parties. Additionally, insurance fraud prevention, class actions, investigations over industry regulations, underwriting practice disputes, and other industry-specific woes make many insurers feel like serial litigators.

Impacting the Bottom Line with e-Discovery

A recent survey revealed that many property and casualty (P&C) insurers feel they must simply accept the inevitability of many of these actions. Seventy-two percent of surveyed teams consider reducing the cost of defending a claim at least as important as preventing claims in the first place. Twenty-two percent consider it “more important” than preventing claims.

These priorities reveal two important realities for legal departments in the insurance world: Claims are inevitable, and disputes over those claims are inevitable, too. While the frequency of claims isn’t under a legal team’s control, their costs in handling these matters can be.

Because e-discovery—especially review—constitutes the vast majority of expenses when it comes to litigation, it’s a significant cost center that legal teams can and should make more efficient. One way to achieve that goal is to minimize e-discovery volumes—a critical benefit insurers are seeing as ECA becomes the norm.

The Case for Early Case Assessment

Put into practice, ECA involves quick analysis and synthesis of data to help teams assess the overarching facts of a case as they emerge. This assessment includes a big-picture view of data stats, including file types, volume, and date ranges. But it also provides insight into more complex nuances—such as custodians (who are they and how many are involved?), search terms (are the key phrases you anticipate using actually coming alive in the data?), and concepts (what themes are emerging?)—to help assess risk, identify irrelevant data, and predict review requirements.

ECA enables legal teams to get a bird’s eye view of the nature of each dispute as quickly as possible. In the case of insurance claims, this means that the insurer can perform an early analysis of the matter and better establish a timeline, understand what type of data they’ll need to handle, and compare the nature of the incident to the policy in play. While full-blown review often requires thorough collection, ingestion, analysis, and review of each piece of data that may be relevant to a case, ECA offers the flexibility to look at the bigger data universe first—before significant resources are expended on the downstream stages of an e-discovery project.

According to that survey, 76 percent of insurance companies surveyed are already trying ECA, and they’re finding it to be 98 percent effective at reducing costs.

Further supporting the use of ECA, the newly revised Federal Rules of Civil Procedure place an emphasis on early and active case management, proportionality, and cooperation between attorneys—all of which are made easier when case teams take an early and thorough look at the data on hand.

Often, ECA is a natural first step to e-discovery because it gives project managers and attorneys a chance to begin strategizing as soon as case data starts pouring in. However, insurance companies—and many other corporate teams—see another benefit in ECA: it can nip e-discovery and the associated costs in the bud. In those cases, insurers’ legal teams are performing ECA to evaluate the merits of a claim and calculate the predicted cost of defending the case, and then decide whether the dispute would be more effectively managed via mediation or a settlement.

If the latter approach makes the most sense, teams can also use ECA to better prepare for mediation or calculate a fair settlement figure to avoid further e-discovery and litigation. Arming themselves with this data-driven case posture can result in more effective, just discussions with opposing parties before the case ever sees a courtroom—saving the insurer and the insured significant cost, time, and frustration.

Whatever the end result, ECA is a practical way to begin any e-discovery project.

How does your team integrate ECA into your standard case workflows? Let us know in the comments or @RelativityHQ on Twitter.

A former litigator/GC/AGC, Dean Gonsowski is an industry-recognized evangelist, thought leader, and speaker. Dean has a JD from the University of San Diego School of Law and a BS from the University of California, Santa Barbara. He has worked with companies around the e-discovery industry, including Relativity, and now serves as chief revenue officer of Active Navigation.