In Chavez v. Std. Ins. Co., 2020 U.S. Dist. LEXIS 203610 (N.D. Tex. Oct. 30, 2020), Judge David C. Godbey considered a variation on a common scenario that arises in first party cases.  Typically, the insured/plaintiff wants an insurer’s claims handling manual to use against the insurer in proving claims under Texas Insurance Code Chapter 541 and the DTPA.  However, as Judge Godbey explained, such manuals are not automatically discoverable.  Also, insurers can significantly increase the chances that a court will protect such manuals from unrestricted discovery and use in litigation by providing certain affidavit evidence.

The plaintiff in Chavez was receiving long-term disability benefits from Standard Insurance Company (“Standard”).  Standard terminated Chavez’s benefits after a medical examination.  Litigation ensued.  Chavez requested Standard’s claims handling manual in discovery.  To avoid a discovery dispute, Standard produced the manual pursuant to an agreed protective order.  Chavez subsequently sought to undo Standard’s designation of the manual as confidential trade secret under the protective order.

Judge Godbey observed that courts have routinely held that an insurer’s claims handling manuals are trade secrets.  He also considered the affidavit evidence provided by Standard in support of its request to keep the manual a confidential trade secret.  The affidavit provides a roadmap to other insurers attempting to protect such manuals from unprotected discovery, indicating that the affiant should emphasize:

• Why the insurer promulgated the claims handling manual;
• The expense incurred by the insurer in creating the manual;
• The insurer’s treatment of the manual as confidential, proprietary, and a trade secret that is not willingly or voluntarily provided to individuals not affiliated with the insurer;
• The insurer’s substantial efforts to ensure that the manual is not available to the public, the insurer’s competitors, or the insurer’s customers;
• The insurer’s use of the manuals as a resource for employees; and
• How dissemination of the manual would be detrimental to the insurer’s ability to maintain its unique position in the marketplace, given the ease with which a competitor could duplicate the manual.

Judge Godbey analyzed Standard’s affidavit with approval (the operative paragraph was only three-quarters of a page long, so affidavit does not need to be lengthy as long as it hits the key points) and kept the claims handling manual under seal.  Also, Judge Godbey criticized Chavez for trying to circumvent an agreed protective order two years after it was entered.  This indicates that insurers can further protect claims handling manuals if the insured/plaintiff does not promptly seek such manuals in discovery and does not promptly challenge their designation as confidential trade secret.

Chavez also argued that Standard waived the protections for the claims handling manual by paraphrasing a portion of the manual.  Judge Godbey rejected this “gotcha” argument as unfair.  He commented that, if a single reference in a motion could destroy the confidentiality of a sealed document, parties would be forced to file virtually every document under seal, which would limit the public’s ability to access the court system.