Insurance and financial institutions understand the importance of data preservation, but from time to time – usually in the throes of complex litigation – the specific requirements of federal and state data preservation laws need to be examined more closely. As the new year begins, we take a look back at the major data preservation cases that affect insurance and financial institutions from 2012 and 2013.

To begin with, we must understand the rules governing discovery, and by extension, data preservation – Federal Rule of Civil Procedure 34 and its state analogue, Florida Rule of Civil Procedure 1.340. Rule 34 controls the discovery of documents by establishing a standard method of requesting and producing non-privileged documents. A party is required to produce all responsive documents that are in the party’s “possession, custody, or control.” Courts interpret “control” very broadly, such that physical possession of the documents is not necessary. Indeed, courts have noted that a party controls the documents if the party has the legal right or ability to obtain the documents from other sources upon demand.

In the October 2012 case of Haskins v. First American Title Insurance Company, a federal district court in New Jersey considered the issue of whether Rule 34’s “control” requirement extended to the defendant title company’s independent agents, who physically possessed the requested documents, and if so, whether the litigation hold on the title company’s documents must be extended to the independent agents’ files.

To determine whether “control” existed on the part of the title company, the court looked at the language of the agency contracts. The court found that each of the contracts with the independent agencies contained clauses in which the agency was required to maintain the documents for a specific period of time, and more importantly, to produce such documents to the title company upon its request. The court reasoned, therefore, that if the title company had the contractual right to obtain the documents through a written request, the “control” requirement of Rule 34 was satisfied.

Once the court determined that the documents in the physical custody of the independent agents were ripe for production, the decision regarding the litigation hold was fairly straightforward. Because the title policies were critical to the plaintiff’s class certification, and were subject to production, the court held that they must be preserved. Further, if the agents did not or could not produce the policies, the title company could be sanctioned – including a spoliation inference – wherein the judge could instruct the jury that they may infer that a party did not produce relevant evidence because such evidence was damaging.  More on spoliation in our next post.

This case sheds light on a previously gray area of document preservation. The question remains whether Rule 34 extends to independent agents not contractually bound to produce the requested documents. Although this decision affects insurance and financial institutions most directly, businesses – no matter how small – must review their agency contracts to determine what obligations the business and the independent agents have to preserve evidence.