How has document disclosure changed in a world of electronic communications? Janet Lambert discusses the implications of the paperless office for re/insurance disputes

Whether re/insurers have moved to a paperless office or not, it is generally the case that the volume of email communications and other documents held electronically by such organisations has vastly increased in recent years. Recent research by the University of California(1) reveals that in the business world approximately 90% of documents are now created and stored electronically.

Risks are being presented, and placed, by exchange of emails. Claims statistics and other material information about the proposed risk are frequently sent to re/insurers by email. Analysis of the risk is often carried out electronically, particularly if there is any actuarial analysis. Re/insurers and brokers also communicate by email about the terms of the slip and policy wording, the placement of any retrocession, the claims when they arise, and the renewal of the risk.

We are also moving into an age when many underwriters and claims managers are using personal digital assistants (PDAs), such as Blackberrys, personal laptops and instant messaging facilities to communicate for business purposes. Although these will often be linked to a server which may hold the same information, they carry their own memory and storage capacity: for example, Blackberrys can store up to 300 files of data. Voicemail and mobile phones, which also record and store data, are used every day in business - a mobile phone can now hold as much data as a personal computer. Meetings, and particularly presentations of the risk, are often recorded on video, and slides used during the presentations may be stored electronically. Many other documents relating to the re/insurance are created on word processors or other document management systems. Intranet sites and websites also store information which may be relevant in the event of a dispute.

As the volume of electronic communications increases, fewer documents are printed and stored on hard copy files. Key documents relating to the risk may therefore only be retained in electronic form.

Volume of documents

Emails have replaced not only paper-based communications but also other forms of communication, such as informal messages previously communicated by telephone or in conversation. A series of emails may now be generated in place of a telephone call. Internal communications are particularly conducted by email. Several persons can be copied into these emails and they may then join in with their own emails. As a result email trains are created, and many copies of the same email come into existence.

Similarly, drafts and other documents can be distributed electronically among members of an underwriting or claims team, and many copies created. In the past, such drafts may have been discarded, but electronic drafts are now more likely to be stored. Thus, the volume of documents held on electronic systems can be vast, making searches for important documents time-consuming and costly.

Document management

Gone are the days when re/insurers can pull a hard copy file relating to a particular risk off their shelf when a dispute arises. Any important documents relating to a particular risk which are held electronically are likely to be stored among all the organisation's other electronic documents, and usually by date order rather than by the name of the risk or the person who sent the email. This can make searches for relevant documents difficult.

Document retention

It has always been important that the parties to a re/insurance contract keep a documentary record of the information presented when the risk was placed, the terms of the re/insurance contract and the signed slip and policy wording in order to facilitate the payment of claims, the recovery of losses under any reinsurances, and to help resolve any disputes which may arise. Documents also need to be retained for regulatory purposes. Of course, not every document needs to be kept, and most companies have a document destruction policy. However, a party to any potential litigation or arbitration should ensure that it preserves any documents relating to the dispute.

The position has not changed now that the bulk of a company's records are held electronically. However, most companies have not yet adapted their document retention and storage policies to take account of their electronic records. Many companies are encouraging employees to clear their desk tops of emails to reduce the amount of storage space required without regard to the importance of the documents concerned. These documents may be archived or simply deleted. What document retention policies exist regarding electronic documents when an employee leaves the company, or the company merges with another and changes its electronic systems?

In theory, electronic documents can never be destroyed. Once they are removed from the desktop, they can still be retrieved from the servers or from back-up tapes which may be held by the company. The other party to a dispute may therefore request that a search is carried out for any deleted or archived documents.

Obligations upon disclosure

Any disclosure of documents in arbitration proceedings is a matter for the parties and the tribunal. Arbitrators, like the courts, are now having to grapple with the difficulties the parties to a dispute are experiencing in retrieving and searching for relevant electronic documents at the disclosure stage.

The English courts currently require a party to disclose all 'documents' on which it relies, and the documents which:

- adversely affect its own case;
- adversely affect another party's case; and
- support another party's case.

The definition of a 'document' under the English Civil Procedure Rules (CPR) is a very wide one, and covers computer databases, emails, word processed documents, imaged documents, metadata, instant messaging and multi-media files.

A party is also required to carry out a 'reasonable' search for such documents. Does this include a search through an organisation's archive or through its back-up tapes, and should an IT expert be called in to try and retrieve deleted or corrupt documents? The only guideline currently available in the CPR is that the search must be reasonable, and also proportionate.

The factors the courts take into account when deciding whether a search is reasonable and proportionate are: the number of documents involved; the nature and complexity of the proceedings; the ease and expense of retrieval of any particular document; and the significance of any document which is likely to be located during the search (CPR r.31.7). All these factors are relevant when deciding whether or not to carry out a search for electronic documents.

To date there has been little additional guidance to assist the parties as to how the courts or arbitrators are likely to deal with issues relating to searches for electronic documents, and there are no English reported cases on this subject. However, the courts have started to address this problem. The Civil Procedure Rules Committee is currently reviewing the position, and a Commercial Court Working Party has recently published a report which recommends that various guidelines on electronic disclosure be added to the Commercial Court Guide(2).

The proposed guidelines encourage the parties to provide each other with information early on in the proceedings about the categories of electronic documents in their control and their computer systems and storage policies. They also set out further factors which the Commercial Court should apply in deciding whether a search for electronic documents is reasonable, including the accessibility of the electronic documents and the cost of retrieving them. Such guidelines are likely to result in parties having to be more transparent about how they store their electronic records, and their document retention policies, and more orders for the disclosure of electronic documents are expected to be made.

In the US there have already been decided cases and academic discussion on the subject of electronic disclosure. In the case of Zublake v UBS Warburg LLD [2003], for example, discovery was ordered of relevant emails which had been deleted and resided only on back-up disks. The court in that case also considered the practice of cost shifting whereby the cost burden of conducting the discovery is shifted onto the party seeking the production of the documents. The Sedona Principles, which have been established in the US and relied on by US courts, have also addressed the circumstances in which the parties will be ordered to search for electronic documents, and which party shall pay for that search.

Consequently, in the future, re/insurers who become involved in disputes may be required to provide information about their electronic systems and retention and storage policies, and to carry out searches for relevant electronic documents for disclosure purposes. In certain cases the courts or arbitrators may also be willing to order a search of an organisation's archives or back-up tapes, or order that an IT expert be given access to its systems in order to locate and retrieve deleted emails.

Recommended practices

Re/insurers should therefore consider adopting the following practices to facilitate any searches they may have to make for electronic documents, and to save time and costs, in the event of a dispute:

- Encourage employees to name key electronic documents so they can easily be searched for.

- Encourage employees to keep key documents in named folders to facilitate later searches.

- Encourage employees to store slips, policies and other contractual documents which may need to be relied upon later in an easily recoverable form.

- Encourage employees to back up any data held on Blackberrys and personal computers.

- Consider whether the company's document storage and retrieval policies are sufficient to enable a search for key documents to be carried out quickly and efficiently.

- Check that any document retention policies cover electronic documents and that they would be considered reasonable by a court or tribunal.

(1) P Lyman and H Varian, How Much Information (2003)

(2)

Janet Lambert is a partner in the Reinsurance & International Risk team at Barlow Lyde & Gilbert.