E-Discovery

E-discovery is now an integral part of the litigation process, growing and evolving in line with technology. Organizations that find themselves in the litigation process need to develop and implement e-discovery strategies. To do otherwise only increases the risk of higher operational costs and possibly damage awards.

Insurers should be informed about e-discovery when assessing and managing claims. There will be occasions when they should look to experts in the field of e-discovery to ensure parties have produced all relevant documents, and that the documents being produced electronically are accurate and complete. This will often require technical expertise to review the electronic storage of the data.

E-discovery is a relatively new concept and Canadian courts are still developing principles on how to treat it. Although the American Courts have dealt with e-discovery longer, it is clear that the legal principles are in their infancy.

Canadian courts do not always follow American jurisprudence, therefore reliance on decisions from American courts should be done with extreme caution. Fortunately, Canadians courts have had the advantage of relying on principles and guidelines developed by judges, lawyers and experts at the Sedona Conference. While these principles have been adopted by Canadian courts, they have not necessarily strictly applied the Sedona principles.

History

With the amount of data being accumulated today in electronic format, organizations must have strategies to deal effectively with data when litigation or audit is expected¹.

Although issues around e-discovery have been considered by American courts for some time now, it wasn't until the Zubulake v. UBS Worburg case in 2003 that the seriousness of the issue was brought to the forefront. In that case, the defendants destroyed information contrary to the advice of legal counsel. The jury awarded $29 million in damages, with two thirds of the award for punitive damages.

To better understand and deal with the issues of e-discovery, a group of experts developed and published the Sedona Principles in 2003. Since then, a second edition has been published, together with guidelines. Although they are not law in Canada, Canadian judges and lawyers rely upon the Sedona Principles and Guidelines to educate themselves on e-discovery.

Scope of Documents

Many provinces have now expanded the meaning of 'documents' to also include electronic data. The Canada Evidence Act, for example, defines 'electronic document' or 'record' as "data that is recorded or stored on any medium in or by a computer system or other similar device, that can be read or perceived by a person or a computer system or other similar device."² It is clear that 'documents' now include emails, word processing files, web pages and, if relevant, financial data that has been stored electronically. The provinces of Alberta, Ontario and British Columbia have also expanded their definition.

It is therefore important that organizations properly preserve such data if litigation is expected. As an example, in the case of Hill v Hill, 2010, the court stated that "as soon as litigation was threatened in this dispute, all parties became obligated to take reasonable and good faith steps to preserve and disclose relevant electronically stored documents. If deleted or residual documents may be relevant, that information must be communicated to the other party early to mitigate the consequences of potential claims of spoliation."

According to Principle 8 of the Sedona Principle, "The primary sources of electronically stored information for production should be active data and information." The concept of active data has been followed in the U.S. law; however, in Canada the courts base their decisions on relevancy as weighed against privacy, proportionately and privileged.

Proportionality

Before a court orders the production of electronic data, it will consider Principle 2 of the Sedona Principles, which relates to proportionality. The principle outlines factors which affect the ability of an organization to store information. These include financial considerations, technological logistics and the nature of litigation.

This was expanded upon with the adoption of an eight factor proportionately list for e-discovery, based on the Rowe Entertainment Inc v William Morris Agencycase in 2002. The factors relate to:

1. The specificity of the discovery requests;
2. The likelihood of discovering critical information;
3. The availability of such information from other sources;
4. The purposes for which the responding party maintains the requested data;
5. The relative benefit to the parties of obtaining the information;
6. The total cost associated with production;
7. The relative ability of each party to control costs and its incentive to do so;
8. The resources available to each party

Courts will take into account the above factors when determining if an organization's storage and retention of electronic information is adequate.

Privilege

Further complications can arise if organizations have not developed an e-discovery strategy to remove privileged documents from production. Principle 10 of the Sedona Principles states that "a responding party should follow reasonable procedures to protect privileges and objections in connection with the production of electronically stored information."

The issue therefore is what are 'reasonable procedures', and what are the consequences if they are not followed? On the one hand, American courts have stated that "to produce with no review at all constitutes inexcusable neglect and amounts to waiver of privilege."³ While in two other American cases the court seems to accept that full production without review is acceptable⁴.

In Canada, the courts have not relieved the parties of a proper review of the documents to determine if a document is privileged. In the case of Air Canada v. West Jet Airlines Ltd. in 2006, the Ontario Superior Court stated that it "would have to be satisfied that the processes adopted by the parties, by which documents are to be produced, would eliminate to the degree reasonably possible the inadvertent production of privileged documents."

It would therefore be prudent for any organization to ensure reasonable steps are taken to avoid the production of privileged documents.

Failure to Preserve and Willful Destruction of Electronic Data

Organizations could face serious penalties if they deliberately destroy data or do not preserve important electronic information.

In the case of Brandon Heating & Plumbing Ltd. V Man Systems Inc. in 2006, the Plaintiff willfully destroyed computer hardware. In such a case the court found that the destruction "leads to the inevitable conclusion that the sole remedy available in light of these breaches is dismissal of the Plaintiff's claim."

Consequently, it is important for the insurer to protect their electronic data, and to advise insureds to preserve and not destroy their own data that is relevant in pending litigation. The consequences could result in the striking of the defense and an obligation to pay damages regardless of liability.

Federally Regulated Entities

The principles of e-discovery are also relevant to organizations that are a Federally Regulated Entity (FRE). The Office of the Superintendent of Financial Institutions (OSFI) Canada has issued guidelines for FREs, relating to the outsourcing of business activities and functions⁵.

FREs are expected to evaluate the risks associated with all existing and proposed outsourcing arrangements, develop a process for determining the materiality of arrangements, and implement a program for managing and monitoring risks, commensurate with the materiality of the arrangements. They must also ensure that the board of directors, chief agent or principal officer receives information sufficient to enable them to discharge their duties under this guideline, and they must refrain from outsourcing certain business activities to the external auditor.

It is clear that FRE will have to take into consideration the guidelines set out by OSFI before proceeding to create an e-discovery strategy.

Conclusion

In this age of ever-advancing technology, the potential for a discovery request of electronic documents is increasingly common. Organizations such as insurance companies who are regularly involved in litigation must have an e-discovery strategy in place. Given that insurance companies are more likely to be involved in litigation and have significant resources, the courts may have less tolerance for an inadequate e-discovery system. Organizations must be aware of the principles of e-discovery, and how they relate to their own electronic information.

¹Guideline 5, Sedona Guidelines
²Evidence Act, R.S.C., 1985, c. C-5, S. 31.8
³Ciba-Geigy Corp. v. Sandoz Ltd., 916 F.Supp. 404, 411 (D.N.J. 1995)
⁴Williams v. Sprint/United Mgmt. Co., 230 F.R.D. 640 (D. Kan. 2005) and Hopson v. The Mayor and City Council of Baltimore, 232 F.R.D. 228 (D. Md. 2005)
⁵No. B-10, May 2001, Revised March 2009