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Liability Insurance Drives Information Management Plans, not eDiscovery or Monetary Sanctions

On average most mid-sized companies are not bothering with Information Management as a means to mitigate e-discovery costs. That is a conclusion reached by comparing Symantec’s 2011 Information Retention and eDiscovery Survey announced in October 2011 with the research completed by King and Spalding, LLP for the Duke Law Journal December 2010.

The Symantec survey is based on feedback from 2,000 global enterprises.  In the survey, respondents were asked to identify how often and how much time they spent on eDiscovery.   Both answers revealed significantly different median and mean responses:

Symantec Survey - eDiscovery Reponses

  • How often are you responding?
    • Median: 4
    • Mean: 63.5

Symantec Survey - eDiscovery Time (hours)

  • How much time do you spend?
    • Median: 12
    • Mean: 66.3

Mean and median are two ways to calculate an average.  Typically, mean is used when the values are tightly spaced, e.g. 2, 2.1, 2.4, 3, 3.2, 3.3, 3.6, etc.  However, when the values are spread apart, e.g. 1, 1, 2, 3, 4, 5, 1000, then evaluating the average based on the mean could be a deceiving statistic.  Based on the survey, it is clear that most respondents have a few eDiscovery responses which take less than 15% of an IT workers overall workweek.  Clearly, productivity costs are low, but what about monetary sanctions?

In December of 2010 Duke Law Journal, in conjunction with King and Spalding, LLP, published “Defining the problem of cost in civil litigation.”  The article detailed cases and associated monetary sanctions for over 77 known cases.  DCIG reached out to the co-author of the article, Dan Wiloughby at King and Spalding, LLP, and his team requesting the median and mean values for monetary sanctions across the 77 cases.

The article lists all 77 cases and the monetary sanctions related to them.  However, determining the mean and median requires some analysis.  Rose J. Hunter Jones sent us the mean and median monetary sanctions from their research:

  • Median: $40, 500.00
  • Mean: $701,607.88

The mean indicates monetary sanctions can be quite high.  But, the median monetary sanction is 15 times lower. The article indicates more companies have negligible and manageable monetary sanctions of less than $40K per event.

The Symantec survey results and the Duke Law Journal article research points indicate a few companies and cases skew average (mean) eDiscovery cost and monetary sanction significantly higher.

ResponsesTime Spent (hours)Sanctions ($US)

Table 1: Median and mean from Symantec’s Survey and Duke’s Law Journal Article

eDiscovery costs are recouped by litigants

In most cases, as indicated by the Symantec survey, eDiscovery productivity costs are relatively low:

  • 4 issues annually
  • 12 hours per issue

However, if eDiscovery productivity costs are higher, the parties have two ways in which they can recover eDiscovery costs:

  • Insurance Claims through liability and indemnity policies
  • Court approved eDiscovery costs by either party

The most visible way for a party to recoup costs related to eDiscovery is through a judgment.  Consider this case:

  • Race Tires America, Inc. v. Hoosier Racing Tire Corp., 2011 U.S. Dist. LEXIS 48847 (W.D. Pa. May 6, 2011)

Duane Morris surveyed “U.S. District Court for the Western District of Pennsylvania held that the two prevailing defendants may recover e-discovery costs because such costs are the modern-day equivalent of duplication costs.”  Mr. Morris and the court caution us not to assume this judgment sets a precedent opinion on eDiscovery costs.  The case bore some “unique facts” that may set it apart from others.  Mr. Morris article has more details.  Yet there are other cases where parties recoup eDiscovery costs, such as:

  • Aspartame Antitrust Litig., No. 2:06-CV-1732-LDD, 2011 WL 4793239 (E.D. Pa. Oct. 5, 2011)

In this case, K&L Gates wrote an opinion and highlighted several key points:

  • plaintiffs desired to reduce or eliminate the defendants bill of costs
  • court agreed “e-discovery saves costs overall
  • court approved costs for defendent
    • creation of a litigation database
    • storage of data
    • imaging hard drives
    • keyword searches
    • deduplication
    • data extraction
    • processing
  • court did not approve costs related to “convenience of counsel
      • document review tool with visual clustering
      • converting a TIFF document to a PDF document

In both cases it is public record that parties recovered and/or reduced eDiscovery related costs.  Mitigating eDiscovery costs during trial is very common. However, there are eDiscovery costs paid by parities not included in public records.

Companies who cannot pay their eDiscovery and litigation costs typically file a claim with their insurance company. All companies should have some form of liability insurance.  In fact, insurance coverage is required to do business with most companies.  Mid-sized companies typically carry basic insurance coverage, such as:

  • general liability
  • errors and omissions
  • workers compensation

Insurance companies pay out millions of dollars in claims for litigation expenses, which includes eDiscovery.  Risk managers at mid-sized companies track and manage litigation expense. Escalating litigation expenses raise eyebrows with risk managers and insurance companies.  Escalating litigation costs will spike a company’s account loss ratio.  In this scenario, insurance providers will do one of two things:

  • Raise premiums
  • Render the account uninsurable

It is the second item that concerns risk managers at mid-sized companies.  Transferring risk to an outside agency, like an insurance company, is a general practice among all companies.  However, when an outside agency “renders an account uninsurable“, a risk manager has three options:

  • Avoid the risk all together
  • Re-assess the risk and develop contingency plans
  • Re-assess the business process and design in risk control

Avoiding all risks related to eDiscovery would result in going out of business, which is not an option.  Being uninsured is not an option, so a company must implement an information management plan.  An Information Management plan is viewed by insurance companies as a key step in reducing litigation risk and cost. Information management plans result in lowering a company’s costs and subsequent risk. Any remaining risk is transferred to an outside insurance company who can evaluate it for new or additional coverage.

Insurance companies provide coverage by managing their risk tolerance.  They understand a minimum amount of Information Management will reduce insurance claims.  Insurance companies can and do require Information Management plans and tools, e.g. contracts, etc. 

As an insured’s loss-ratio increases, expect insurance companies to increase their requirements for information management plans.   Until then, expect the demand for Information Management in mid-sized companies to be driven by reactionary responses to eDiscovery requests as opposed to potential eDiscovery costs.


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