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July 14, 2016

Courts Make the Case for Information Governance

The push to develop an information governance (IG) program is often stonewalled by the great interrogative “why.” Questions like “why are we budgeting money to solve a problem that does not exist?” can derail promising programs even when justified by a proper use case. The problem with this line of inquiry is that it frequently ignores the crucial needs associated with IG. The fact is that most companies do have information problems, even if many do not recognize them.

As discussed in an article that Legaltech News first published last month, the hot IG trends in 2016 have focused on the problems created by data security weaknesses, employee use of personal cloud applications, and the internet of things. While these issues must be addressed, companies should not overlook the importance of both developing and then integrating information retention policies and litigation readiness measures. Doing so under the direction of counsel can help an organization be prepared for legal actions. Taking no action in this regard leaves enterprises vulnerable to litigation hazards. The Sell v. Country Life Insurance Company case from earlier this month is particularly instructive on these issues.

The IG Debacle in Sell v. Country Life Insurance

In Sell, the court issued an order of default judgment against the defendant insurer for its discovery failings. At the heart of the court’s order was its disapproval of the insurer’s information retention and preservation measures respecting email. The insurer took little effort to retain or preserve important emails reflecting discussions among claims analysts regarding the denial of an insurance claim.

On the retention side, the insurer used the Microsoft Exchange server to retain emails for a limited period of time. Because the exchange server would overwrite emails upon reaching its storage capacity, employees were “directed to clean out their email boxes every three or four months to avoid filling up the exchange server.” The only way to circumvent this mass destruction of email would be for “employees [to] electronically deposit their communications into the appropriate claim file.” In other words, employees would need to self-select documents for retention because “emails are not automatically included in the claim file.”

Regarding preservation, the insurer did not issue a litigation hold until the claimant filed a lawsuit. While the insurer used an information archive to preserve the emails, the court explained that such a preservation step was (in this case and likely in others) too little and too late. Given the lapse in time (two years) between the denial of the plaintiff’s claim and the filing of his lawsuit, no emails discussing the denial of the claim were affirmatively kept by the insurer. They had either been overwritten by the exchange server or destroyed in the ordinary course of company-mandated email purges. The only emails that happened to be produced in discovery were available by coincidence due to the existence of an unrelated legal hold.

All of which justified the court’s default judgment order since it incentivized the insurer to discard harmful evidence in violation of its discovery obligations:

[T]he [insurer’s IG] system creates incentives to exclude from the claim file any email communications that could potentially harm Defendant’s position in subsequent litigation, knowing that such emails are unlikely to be preserved . . .” (emphasis added)

The Need to Develop an IG Program

Sell makes clear that organizations must develop an IG program so they are prepared to satisfy the demands of discovery. While information security and data protection are integral parts of an IG program, parties must also create reasonable records retention policies to be prepared for litigation. Indeed, retention protocols that provide for effective upstream management of information are essential for responding to downstream discovery requests.

Those protocols become all of the more effective when they are coupled with a downstream litigation readiness plan. Designed to address the reactive process of eDiscovery, litigation readiness measures better ensure that retained information is seamlessly produced in discovery. And as Sell teaches, an effective litigation hold process – properly integrated with upstream retention policies – is particularly significant in accomplishing this objective.

Sell and various other cases amply demonstrate that organizations must implement a workable IG program. Clients and counsel that fail to do so may compromise their position in litigation and risk incurring the game-ending discovery sanctions imposed in Sell.

Philip Favro
Philip Favro
Philip Favro acts as a trusted advisor to organizations and law firms on issues surrounding discovery and information governance. Phil provides guidance on data preservation practices, litigation holds, data collection strategies, and ESI search methodologies. In addition, he offers direction to organizations on records retention policies and the need to manage dynamic sources of information found on smartphones, cloud applications, and social networks. Phil is available to serve as a special master on issues related to electronic discovery. Phil is a nationally recognized thought leader and legal scholar on issues relating to the discovery process. His articles have been published in leading industry publications and academic journals and he is frequently in demand as a speaker for eDiscovery education programs. Phil is a member of the Utah and California bars. He actively contributes to Working Group 1 of The Sedona Conference where he leads drafting teams and serves as the Steering Committee project manager. Prior to joining Driven, Phil practiced law in Northern California where he advised a variety of clients regarding business disputes and complex discovery issues. He also served as a Judge Pro Tempore for the Santa Clara County Superior Court based in Santa Clara, California.