A Hidden Risk When Obtaining D&O Insurance (Part 2 of 2)

A Hidden Risk When Obtaining D&O Insurance
Part 2 of 2

The environment discussed in Part 1, especially over the past three years, has spurned a cottage industry for addressing e-discovery “risk”.   However, e-discovery is a variable expense that in-house legal and risk management officers are continually confronted with assessing on a case-by-case basis.   Therefore, corporations are constantly attempting to quantify–or at the very least contain–litigation costs that D&O Insurance policies may not have properly contemplated. However, it is not impossible to tackle this financial vulnerability by modeling e-discovery lifecycles across various types of complex litigations in the context of efficient trial practice rather than refusing to depart from inefficient pretrial discovery processes.

Moreover, a company’s historical litigation costs which are excessive because they were not properly managed may impact the company’s ability to obtain adequate D&O Insurance coverage or, at a minimum, may drive up coverage premiums.  Additionally, the companies and their insurance agents must be sufficiently facile with e-discovery so that they can effectively address any underwriting issues the carriers may raise.

Prudent corporations will implement procedures (e.g. document retention policies) and technologies that will control costs.  Additionally, corporations should be proactive by collaborating with their IT employees to address e-discovery requirements and select outside professionals to assist the corporations during the e-discovery process (e.g. computer forensics experts).

By putting the best policies, protocols and tools in place, corporations can most effectively assess the terms of D&O coverage and the policy limits which are likely to be appropriate.    Additionally, corporations and their insurance agents who are proactive in addressing e-discovery risks and obligations will be better equipped to go to the marketplace for D&O insurance.

The challenges of e-discovery are increasing because of the various new technologies that are being introduced into the business environment (e.g. instant messaging) and the proliferation of ESI resulting from more users of these technologies.  As a result, in-house counsel and insurance agents must stay ahead of the curve so that risk is appropriately assessed and managed.  The more proactive corporate entities are in finding legal representation that approach e-discovery as a direct expense to the corporation rather than a premium on legal services, the more D&O Insurance coverage may become available under a given policy because the consequences of failing to obtain adequate D&O insurance can be dire.

** This is an abridged version of the article written by Daniel Garrie and published in the Los Angeles Daily Journal.