National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

California follows federal, and some state, courts in enacting new e-discovery rules. The rules took immediate effect and apply to all pending and future lawsuits.  Cal. Code Civ. Proc. § 2031. The rules for the most part mirror the 2006 changes made to the Federal Rules of Civil Procedure.

The new California rules provide for discovery of electronically stored information (“ESI”). ESI is defined as information stored in an electronic medium and can include technology with electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. Parties are allows to inspect, copy, test, and sample ESI in the possession, custody or control of the other party. The requesting party may specify the form in which ESI is to be produced and the responding party can object and indicate the form in which it will be produced, or if no mention is specified, produce it as it is ordinarily maintained and in a form that is reasonably usable.

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In recent years, the Seventh Circuit has emerged as a beacon of sanity in the morass of federal insurance jurisprudence (well, yes, there was Eljer butr everyone makes a mistake occasionally).  As among the judges on the court, Posner and Easterbrook are particularly interesting to read.  So it is with pleasure that we commend to your consideration a savage new opinion from Judge Easterbrook saving a policyholder who had the effrontery to challenge the scope of the "your work" exclusion in a recent Indiana case.

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While all but two states permit insurers to use staff counsel to represent their insureds, many have adopted rules requiring defense counsel to clearly explain that they are employees of the insurance company.  Yet how can counsel do so in a trial context without improperly introducing the fact of the existence of insurance, to the prejudice of insured and insurer alike?

Five years ago, the Florida Supreme Court adopted a new Rule 4-7.10 back in 2003 requires staff counsel to advise their insured client of their relationship at the very outset of the representation. On the other hand, staff counsel need not disclose their relationship with their insurer during the trial or representation of the policyholder as Florida courts have recognized the public policy of not disclosing the existence of insurance coverage to juries.

Despite this seemingly sensible resolution of the issue, the same problem resurfaced in West Virginia, a state that often seems to create headaches for insurers..

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In Robert Campagnone v. Enjoyable Pools & Spa Service & Repairs, Inc. (2008) ___ Cal.App.4^th ___ [08 C.D.O.S. 6579], the California Court of Appeal, Third Appellate District, denied a motion for sanctions against an insurer for failing to attend a court-ordered mediation, and against a party and its attorneys for failing to notify the insurer of its obligation to attend.  However, the court announced that parties and their counsel will be sanctioned in future cases if they fail to put an insurer with “potential insurance coverage” on notice of the insurer’s obligation to send a representative with full settlement authority to court-ordered mediations. The court also warned insurers with “potential insurance coverage” that they can be sanctioned if they fail to send a representative to the mediation.

The court based its holding on the Third Appellate District’s local rules include Local Rule 1(d)(9) which provides that all parties and their counsel of record must attend all mediation sessions in person and with full settlement authority.  The rule also provides that, if a party has “potential insurance coverage applicable to any of the issues in dispute, a representative of each insurance carrier whose policy may apply also must attend all mediation sessions in person, with full settlement authority...”

The Court reasoned it has authority to impose such sanctions under the Appellate Rules of the California Rules of Court, Rule 8.276(a) and Local Rule 1(g). In addition, the Court explained that sanctions can be awarded against insurers because they are considered parties to a mediation.

Other Districts' and specific court's rules should be consulted to determine whether this ruling will have application outside of the Third Appellate District.

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On January 7, 2008, a Magistrate Judge in California issued a sanctions order imposing over $8.5 million in monetary sanctions on a company for discovery abuses in a case that company lost at trial, in what should be a cautionary tale for companies and their lawyers as they respond to discovery requests. (Qualcomm, Inc. v. Broadcom, Inc., U.S. Dist. Ct., So. Dist. Of Calif., Case No. 05civ958-B (BLM).)  Magistrate Judge Barbara Major sanctioned six of Qualcomm's outside counsel -- junior associates through partners. Although she did not impose monetary sanctions on counsel, she referred the sanctioned attorneys to the State Bar and ordered them and Qualcomm’s in-house attorneys to determine how the discovery breaches occurred and to develop a protocol to prevent similar failures in future cases.

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