In nearly every bad faith case filed against an insurance company, the policyholder requests the insurer’s Claim Handling Practices Guidelines because the guidelines establish the company’s practices and procedures with regard to investigating and paying first party insurance claims. This is essential information for the policyholder because it is one of the few ways a policyholder can establish an insurer’s failure to act in good faith.
Inevitably, the policyholder is hit with the insurer’s refusal to disclose the documents, or the insurer’s demand that the policyholder execute a blanket protective order before the insurer will produce any of its internal claims handling guidelines. Insurers have drafted these blanket protective orders very carefully, to ensure that the policyholder and his or her counsel will be prevented from sharing any of the insurer’s documents with other plaintiffs’ counsel—even if representing similarly situated plaintiffs/policyholders, who have bad faith claims against the same insurer. The insurance company protective orders always require destruction of all insurer documents at the close of the case. Such restrictions ensure that similarly situated policyholder/plaintiffs will be required to carry the burden of the extreme time and expense of obtaining these documents from the insurer each time a new plaintiff, with limited resources, must sue the insurer for bad faith claims handling practices.
PROTECTIVE ORDERS SHOULD BE THE EXCEPTION, NOT THE RULE
Under Fed.R.Civ.P. 26(c), a party must demonstrate “good cause” for entry of a protective order. Conclusory or stereotypical assertions are insufficient to show good cause.1 There is a presumption in favor of public access that the movant must overcome.2 To overcome that presumption the movant must show that “the public’s right of access is outweighed by privacy interests.”3 To obtain a Rule 26(c)(7) protective order for allegedly confidential information, the movant must show that (1) the interest for which protection is sought is an actual trade secret or other confidential business information protected under the Rule, and that (2) there is good cause for the protective order. “The party seeking a protective order must show that disclosure will result in a clearly defined and serious injury to the party seeking protection.”4
Lawyers who often represent policyholders against insurance companies are familiar with most insurance company claims handling guidelines—and most of these lawyers will attest that there is little variation among insurers when it comes to the substance of these claims handling guidelines. For this reason, competing insurance companies have very little interest in obtaining other insurers’ claims handling guidelines. Unfortunately, courts still love to grant insurance companies’ motions for protective orders. Despite the fact that insurers rarely show that any insurance company has ever derived a benefit from the numerous insurer internal claims handling guidelines which have already been released to the public without protective orders in past cases, courts gladly grant motions for, and enforce insurance company protective orders.
It is unfortunate that courts often grant insurer’s requests for protective orders because, in reality, the insurer’s only goal in insisting on such an order before producing documents is to prevent sharing of information with other attorneys handling similar claims, and the ability to check with other attorneys as to whether the insurer is complying with its discovery obligations in a particular case. The insurer prefers the substantial advantage it has when a judge and jury only see the partial picture of the claims process that plaintiffs/policyholders, with their limited resources, can generally manage to pry from the insurer in the course of one case. This practice to limit or restrict discovery is not within the letter or spirit of the states’ or federal rules of discovery. To the contrary, the rules of civil procedure are aimed at reducing the time and expense of discovery.
Using fruits of discovery from one lawsuit in another litigation, and even in collaboration among various plaintiffs’ attorneys, comes squarely within the purposes of the Federal Rules of Civil Procedure.5
My post next week will examine why courts are so willing to assist insurers in preventing policyholders from obtaining proper discovery of claims handling guidelines.
1 Exum v. U.S. Olympic Comm., 209 F.R.D. 201, 206 (D. Colo. 2002) quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n. 16 (1981).
2 Fourhorn v. City & County of Denver, 261 F.R.D. 564, 568 (D. Colo. 2009).
3 Fourhorn, 261 F.R.D. at 568.
4 Exum, 209 F.R.D. at 206. (Emphasis added).
5 Nestle Foods Corp. v. Aetna Cas. and Sur. Co., 129 F.R.D. 483, 486 (D.N.J. 1990).