Proper Claims File Maintenance and Its Implications in the Era of E-Discovery

By Jason Kelly

In Arizona, the general rule is that an insurance claim's file is discoverable in a bad faith action. Brown v. Superior Court In and For Maricopa County, 137 Ariz. 327, 670 P.2d 725 (1983). Therefore, when investigating a potential claim, proper maintenance of the claim's file is of paramount importance. Additionally, evidence of claims handling practices as to other insureds (not necessarily the one making the claim) is relevant to a jury's findings assessing punitive damages when considering whether the carrier's action are "reprehensible" enough to warrant punitive damages. Merrick v. Paul Revere Life Ins. Co., 2007 WL 2458503 (9th Cir., Aug. 31, 2007).

Therefore, proper preservation and maintenance of the claim's file is of utmost importance. The rules of litigation have changed in order to accommodate the fact that many business entities are moving toward, or utilizing, electronic (or "paperless") files. Federal Rule of Civil Procedure 34 was amended last year to allow discovery of a company's computer hardware and software. Every e-mail may become the subject to discovery and, perhaps, admissible evidence. The discovery may also entail metadata, thus allowing an adverse party to view every change made to every document.

This presents claims handlers and investigators with a unique challenge and a unique opportunity. First, we should appreciate the role that e-mail and electronic communication plays in the workplace. Conversations that used to be held in the hallways, over the phone or around the water cooler are now often reduced to intra-office email. Oftentimes, however, the email communication mirrors the "water cooler talk." The rule in your office should therefore become, "If you don't want it read in front of a jury, don't email it."

While this may seem a daunting warning, it also provides a claims handler or investigator a clear standard of practice. By realizing that anything on your computer may become part of a trial, you should be motivated to pay particular attention to the documents you create. This can, if approached properly, raise the level of service provided to insureds and the insurance company.