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Electronic discovery rules revised

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Risk managers can play an important role in helping their firms comply with new federal court rules governing the handling of electronic communications, including e-mail and attachments, during discovery in litigation, say observers.

Amendments to the Federal Rules of Civil Procedure went into effect Dec. 1. The rules call for early attention by the courts to the issue of electronic discovery, and cover issues including required disclosures, scope and limitations of discovery, requests for data and subpoenas.

Among other provisions, the rules say a company does not need to provide discovery of electronically stored information "from sources that the party identifies as not reasonably accessible because of undue burden or cost."

The rules also prohibit sanctions against companies for information that is lost "as result of the routine good-faith operation of an electronic information system."

James Koenig, Philadelphia-based co-leader of PricewaterhouseCoopers L.L.P.'s privacy practice, said the rules provide clarification to companies involved in litigation. Under the previous rules of civil procedures that were designed for paper records, there was uncertainty as to what electronic records could be required, said Mr. Koenig.

As a result, "courts were inconsistent about the degree that they would go to make companies produce electronic information, or to the extent they would let companies off because electronic information was hard to produce. The new rules add certainty" to the process, he said.

David K. Isom, an attorney with Greenberg Traurig L.L.P. in Denver, said the new rules require firms "to have their electronic data available and accessible more quickly than before, and that has all kinds of implications" for document retention programs.

"It suggests that document retention needs to be done with litigation accessibility clearly in mind and makes it so that that's one of the goals of a retention program that ought to be given consideration," Mr. Isom said.

Risk managers should be involved in the process, observers say.

The effort should be led by general counsel, but "I'd sure want to know the risk management folks are involved, or at least keeping an eye on making sure the right people are involved," said Richard S. Betterley, president of Sterling, Mass.-based Betterley Risk Consultants Inc.

Mr. Betterley said he would advise risk managers "to be discussing and potentially meeting with corporate counsel to set up a plan to implement compliance" with the federal civil litigation requirements.

"Risk managers need to be involved in working with their companies to make sure that everyone is aware of the new requirements," said Mark Charron, a principal with Deloitte Consulting L.L.P. in Hartford, Conn. "I would see the risk manager linking and coordinating with the office of general counsel of their particular company to make sure, in fact, programs are in place and that policies and procedures have been developed and have been rolled out."

Mr. Isom said, "It seems to me that the primary role of the risk manager is to make sure that these people are being brought together so that everyone can understand the risk, and both try to control the risk and insure it," through directors and officers liability coverage.

"The first impact of the rule will be felt by legal departments," Mr. Koenig said. But risk managers "will increasingly be playing a part in helping to strike the balance between longer retention for business purposes" vs. shorter retention periods to avoid potential litigation risks.

Michael Rodman, a principal with Needham, Mass.-based J.H. Albert International Insurance Advisors Inc., said risk managers "need to make sure that they have protocols that fall within the rules in terms of destruction and elimination of electronically stored documents so they don't get accused of spoliation of evidence."

The process is "obviously risky" because they could be fined and, even more importantly, face "the implications of guilt if there is a discovery process and it's found that they have eliminated documents" they should have kept, said Mr. Rodman. Risk managers also must be concerned with the inadvertent disclosure of confidential or privileged information during this process, he said.

Ann Longmore, New York-based executive vp and product leader for D&O, fiduciary and employment practices with Willis Group Holdings Ltd.'s executive risk practice for North America, said the risk manager can determine the D&O insurer's preferred vendors to conduct e-discovery and help set a budget for the work in the event of litigation.

"I think if the risk manager is not in this process, it's going to be far more difficult for the organization itself to understand what its mandates are from an insurance coverage perspective" and to determine "the reasonable and necessary costs" associated with settlement or defense of a claim, said Ms. Longmore.

She noted that such expenses, which could run into the millions of dollars, must be approved by the insurer to assure coverage.