As discussed in my July post, in nearly every bad faith case filed against an insurance company, the policyholder requests the insurer’s Claim Handling Practices Guidelines, which 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.
Even though the rules of civil procedure are aimed at reducing the time and expense of discovery, courts routinely grant insurers’ motions for protective orders, even without a proper showing by the insurer, “that disclosure will result in a clearly defined and serious injury to the party seeking protection.”1
Courts routinely grant these insurance company motions for two reasons. First, any harm that may come from releasing a confidential document is misperceived as more harmful than the harm that comes from preventing similarly situated plaintiffs from sharing insurance company claims handling guidelines. Second, overloaded court dockets prevent judges from having enough time to review documents in camera to determine if any of the alleged “confidential” information is actually confidential or proprietary.
The harm that comes from preventing similarly situated plaintiffs from sharing insurance company claims handling guidelines:
Court dockets are often so overloaded that, rather than actually view the documents in question, judges sign insurers’ protective orders based on the assumption that very little harm will come to the plaintiff because the plaintiff will see the documents once the protective order is signed. Courts also know that plaintiffs often do not have the money or the time to appeal these orders.
Unfortunately, the financial harm to plaintiffs is severe and widespread; it costs plaintiffs even more money in discovery. Each and every plaintiff suing an insurance company for bad faith must spend thousands of dollars in motions, attorney fees, hours, and costs to obtain nearly the same documents that each plaintiff before them had to spend obtaining the same documents. The financial playing field is already extremely uneven. (The average family brings in about $49,445 per year,2 while State Farm’s profits for 2011 were $1.7 billion.3). When courts sign protective orders, they further this financial disparity.
Rule makers, aware of the financial burden on plaintiffs in litigation, have long required courts to consider the financial burden of discovery.
Federal Rule of Civil Procedure 1 requires:
These rules govern the procedure in all civil actions and proceedings in the United States district courts, except as stated in Rule 81. They should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding. [Emphasis added].
Some courts recognize the harm that comes from preventing similarly situated plaintiffs from sharing insurance company claims handling guidelines. In Ward v. Ford Motor Company, the court recognized the policy in federal and state courts is to promote sharing of materials among litigants because it reduces duplicative discovery and associated cost, increases judicial efficiency, and promotes the trial of any dispute on its merits, rather than on the basis of the patience, diligence, or the financial resources of the parties. Any other result would require that "each litigant who wishes to ride a taxi to court must undertake the expense of inventing the wheel".4
Insurers are aware that courts rarely have the time to review the thousands of documents claimed to be proprietary or confidential. Insurers use this to their advantage, often pointing out to courts that it would take the judge days to review each page at issue and determine whether there is any merit to the insurer’s claims of confidentiality. Rather than succumb to this scare tactic, judges should sign “sharing protective orders” allowing similarly situated plaintiffs to share documents where the plaintiffs are suing the same insurer for bad faith. Better yet, courts should hold the insurers to the proper standard and deny protective orders unless the insurer ACTUALLY shows “that disclosure will result in a clearly defined and serious injury to the party seeking protection.”
Such a shift will allow plaintiffs to partially close the financial gap between insurance companies and insureds who have suffered from a bad faith denial of insurance benefits.
1 See Exum v. U.S. Olympic Comm., 209 F.R.D. 201, 206 (D. Colo. 2002).
2 Dougherty, Conor. (2011, September 14). Income Slides to 1996 Levels. Wall Street Journal on the Web. Retrieved August 7, 2012.
3 CNN, Fortune & Money on the Web. Retrieved August 7, 2012.
4 Ward v. Ford Motor Co., 93 F.R.D. 579, 580 (D. Colo. 1982).