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5 questions and answers about litigation holds.

Byline: Jessica M. Skarin, Esq.

The phrase "spoliation of evidence" invokes thoughts of discarded pipes and compromised fire scenes.

Even the greenest of first-party adjusters and subrogation professionals are quick to ask an insured if the physical artifacts related to a loss are still available.

Given that most documents and communications are now transmitted and stored electronically, the potential for spoliation of evidence exists not only with physical artifacts, but also with the preservation of documents and electronically stored information, called "ESI."

In order to prevent a claim or defense alleging the spoliation of evidence, adjusters and subrogation professionals should be implementing litigation holds for all claims where subrogation is pursued.

1. What is a litigation hold?

A litigation hold is a directive that relevant documents and electronically stored information be preserved so that the documents and ESI remain available should they be needed during future litigation.

The hold is intended to prevent the unintentional or intentional destruction of information. Often times, litigation-hold directives are sent to adverse parties to ensure that they do not destroy potentially relevant information. However, the duty to preserve is mutual, and subrogation professionals should be mindful of the duty to preserve all relevant documents and ESI as soon as a subrogation claim is anticipated.

2. When should a litigation hold be implemented?

Most jurisdictions require the parties to take affirmative steps to preserve potentially relevant information as soon as litigation is anticipated. From a defendant's perspective, the obligation to implement a litigation hold is often triggered by a notice-of-claim letter or formal service of process.

In the subrogation context, the precise date that litigation is anticipated may be more difficult to ascertain. Adjusters often initiate subrogation investigations as a matter of course, and even the involvement of a subrogation professional may not necessarily indicate that litigation is anticipated. It may take days or weeks to determine whether a potential subrogation claim exists. As such, the precise date on which a litigation hold should be implemented is often a fact intensive inquiry that is determined on a case-by-case basis. A good practice is to implement a litigation hold no later than the date that liability insurance information is requested or formal notices of claim are sent to potentially adverse parties.

3. Who should implement the litigation hold?

In the subrogation context, both the insurer/subrogee and the insured/subrogor should implement a litigation hold with the assistance of the adjuster or subrogation professional.

During the adjustment of the first-party claim, the insured should be notified of the subrogation investigation and the possibility of litigation. If feasible, while the insured is already collecting documents for the adjustment, the adjuster or subrogation professional should also instruct the insured to take steps to prevent the destruction of all documents and ESI potentially relevant to the subrogation claim.

The instruction to implement a litigation hold should be in writing and request a written acknowledgement from the insured. It is also helpful to identify for the insured the person to whom all questions should be directed, whether that person is the adjuster or the subrogation professional.

The insurer/subrogee should also take the necessary steps to ensure that it is preserving all relevant information. While most of the relevant materials are kept as a matter of course in the form of a claim file, the existence of a claim file does not necessarily satisfy an insurer's obligation to preserve information when a subrogation claim is anticipated. For example, not all claim files contain every email exchange related to the adjustment.

Additionally, in some situations the insured's loss history and underwriting file may be potentially relevant. If this is the case, the insurer and the subrogation professional should discuss whether the insurer's document retention policy adequately protects older information, or if additional action is necessary. Moreover, to the extent independent adjusters are involved in the claim process, steps should be taken to ensure that outside adjusters have also implemented a litigation hold.

Related: Looking behind the curtain: Social media evidence and ethical discovery

Each litigation hold should be tailored to the specific loss and frequently includes documentation such as emails, time cards, maintenance records, credit card statements and other data. (Photo: Shutterstock)

4. What should be preserved and how?

By the time litigation of a subrogation claim is anticipated, an adjuster will likely have already gathered critical documents such as the relevant contracts and invoices.

A litigation hold is intended to confirm the preservation of these critical items, and also the preservation of all other information related to any aspect of the subrogation claim. The written litigation-hold instructions should be tailored to the specific loss in order to provide guidance as to the type of information that needs to be preserved. This could include surveillance videos, maintenance records, inventory lists, credit card statements or employee time sheets.

The duty to prevent spoliation does not require the preservation of every single document. The scope of the litigation hold is dictated by the facts and circumstances surrounding the subrogation claim. Only ESI that may be requested in any forthcoming litigation need be preserved. Parties and their attorneys are required to use good faith efforts to determine what may reasonably be requested during litigation and how best to preserve potentially relevant ESI.

When deciding on the scope of the litigation hold, be sure to consider information related to the damages claimed in addition to liability. Keep in mind that establishing damages in litigation often requires more than is required during the adjustment of an insurance claim. For example, a hotel that was paid following the submission of a business interruption claim may need to preserve additional occupancy data and historical rate details in order to establish a lost profits claim during litigation. The substance of each claim will dictate the scope of the litigation hold.

Given the overwhelming use of electronic communication, all litigation holds are likely to require the preservation of email communications. To assist with the preservation process, identify the type of email server used and how ESI is stored. For personal email accounts, have the account owner immediately search deleted and sent emails. For professional email accounts, identify all persons within the business who may have sent or received relevant emails and immediately discontinue any automatic deletion of information for these accounts.

Communicate with an organization's Information Technology department and any records custodians to review document retention policies and ensure everyone is aware of the litigation hold and what it entails. In situations involving large claims or significant amounts of data, it may even be necessary to hire an outside vendor to copy hard drives, download data or otherwise assist with the preservation process.

5. Why are litigation holds important?

The prompt implementation of a litigation hold is prudent because it is a critical factor in evaluating whether a party has complied with its duty to preserve potential evidence.

Some courts have even held that the implementation of a litigation hold is more than just a critical factor for consideration, and is in fact a requirement imposed on all litigants. Regardless of the jurisdiction, the proper implementation of a litigation hold is well worth the time and effort. Failing to properly preserve relevant documents or ESI as soon as a subrogation claim is anticipated may subject the insurer to sanctions.

The destruction of relevant information, whether intentional or unintentional after a litigation hold should have been implemented may be viewed as potential grounds for a spoliation claim or defense. Sanctions may be imposed in the form of monetary fines, adverse inferences and the dismissal of claims in egregious cases.

Do not risk losing a recovery by waiting until a discovery request has been served. By the time a formal request has been received, it may be too late. Protect a subrogation claim by implementing litigation hold directives early in the subrogation process.

Jessica M. Skarin is a senior associate in the Tampa, Florida, office of Butler Weihmuller Katz Craig LLP, where she specializes in subrogation.
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Publication:Property and Casualty 360
Date:Oct 19, 2016
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