It is not uncommon for insurance companies to argue that company documents, such as claims manuals and guidelines, are trade secrets and worthy of a protective order. This is nonsense.

First, insurance companies frequently exchange claim manuals, guidelines, and the like amongst each other. Carriers do not genuinely raise the trade secret specter for the typically asserted reason of preventing other carriers from gaining some sort of competitive advantage. Rather, it is relatively clear that carriers raise the trade secret specter solely to stymie policyholder practitioners from sharing company documents and gaining a bit of a litigation leg-up on the industry. Second, insurers and policyholders are simply not competitors within the intended meaning or purpose of trade secret.

I found two interesting decisions from different seaboards.1

In McCallum, the Court of Appeals of Washington affirmed the trial court’s denial of Allstate’s motion for protective order because Allstate “failed to provide concrete examples to illustrate how [its] strategies or procedures in handling claims were materially different from those of its competitors.” Put differently, the McCallum court determined that Allstate was not deserving of a protective order because it did not demonstrate its claim manuals had “novelty and uniqueness.”

Three years earlier, and all the way on the other side of the country, the United States District Court of New York held similarly. In denying INA’s motion for protective order, the Levy court observed and held as follows:

In this case, [INA] seeks an order preventing dissemination by counsel of aspects of its claims-handling manual. The basis for [INA’s] request is unclear. Although [INA] asserts that disclosure of the material to its competitors could cause competitive injury, it suggests no reason to believe that plaintiff or plaintiff’s counsel has any intention to disclose the material indiscriminately or to [INA’s] competitors. Rather, [INA’s] documentation relates to its assertion that claims-handling information has been or may be disclosed to counsel for other plaintiffs in disability cases.
[W]hile documents exchanged in discovery may not presumptively be matters of public record, that does not mean that ordinary discovery materials must be deemed confidential. Particularly where specialized counsel or repeat litigation players are involved, it is unrealistic to attempt to limit the use of discovery materials to a single case. Where the party seeking a protective order does not demonstrate the materials to be actually sensitive, courts are not obliged to enter orders that limit the freedom of opposing counsel and require the court to police future use or public disclosure of materials obtained in discovery.

Insurance companies realize full well that they will not suffer a competitive injury at the hands of other insurance companies if company materials are disseminated. This does not stop insurers, however, from trying to confuse judges on the meaning of “competitor” in the context of trade secret. As recognized by the courts above, a policyholder is not a “competitor” of an insurance company within the meaning of trade secret. And this reality is backed by the time-tested industry standard that claim adjustment is not supposed to be an adversarial process.

To read previous posts in my series on dynamite discovery decisions, click here.

1 McCallum v. Allstate Prop. & Cas. Ins. Co., 204 P.3d 944 (Wash. App. 2009) and Levy v. INA Life Ins. Co. of N.Y., 05-CIV-10310 (S.D. N.Y. Nov. 14, 2006).