Schwartz, Conroy & Hack formerly known as Quadrino Schwartz obtained an important decision in one of the three class actions spearheaded by QS. The decision was recently featured on the front page of the New York Law Journal (3/28/2005).
The article highlights the recent decision as a “Decision of Interest” and includes the full text version of the decision.
In this class action, called John Doe* v. New York Life Ins. Co., QS is pursuing a reassessment of all claims denied or terminated by UnumProvident under insurance policies issued by any of the following: New York Life, John Hancock Life, The Equitable, National Life of Vermont, General American Life, and others. These other companies hired UnumProvident to administer their entire book of disability claims and, subsequently, make those claims decisions. UnumProvident used the same illegal claims practices in denying and terminating these claims as they did with their own claims as issued by Paul Revere, UnumProvident, and Unum.
Read the full text version of the New York Law Journal’s article and decision, as seen below:
John Doe* v. New York Life Ins. Co.
Decision of Interest —
Published in the New York Law Journal 3/28/2005
IN A CLASS action alleging improper claims handling by some of the nation’s largest insurance companies, plaintiff moved to compel defendants to preserve certain material as evidence. The action was closely related to a consolidated federal multi-district litigation (MDL), in which two similar preservation orders were in effect. The court explained, however, that the federal protections were not directly binding because only a federal court would have the power to enforce a breach. It also determined that the federal orders might not be sufficient protection for plaintiff in the state action: a federal court might not require the same production as the state court and the allegations in the actions might diverge, causing a divergence in the scope and details of discovery. Accordingly, it granted the preservation order, despite the federal protections already in place. However, it noted that defendants could move to have plaintiff absorb discovery costs.
See the full text version of the decision, below:
NEW YORK COUNTY
The instant action and the related actions consist of the same basic gravamen, as detailed above. The principal difference is that this action alleges that Unum engaged in the alleged mishandling of claims as a service agent for defendant New York Life, which was the issuer of the policies (Complaint 91, 98, 102, 103).
The Parties’ Efforts at Preservation of Documents in this Action: [*4]
A little over a month after the commencement of the action, plaintiff’s counsel asked defendants’ counsel to stipulate to a document preservation order (Order to Show Cause Ex. E). Defendants’ counsel agreed to preserve documents, while declining to stipulate to an order (id. Ex. F). Specifically, they acknowledged defendants’ ongoing duty to preserve documents and data pursuant to the preservation orders in the Keir action and the MDL, and argued that a formal order herein would be redundant and unnecessary (Def. Ex. D). Plaintiff’s counsel insisted on a formal order, and filed this motion therefor, compelling the preservation of documents.
The form of order which plaintiff’s counsel seeks is conceded by him to be “a word-for-word duplicate of the Order entered in the Keir class action litigation and in the ERISA Benefit Denial Actions in Tennessee” (Order to Show Cause Ex. E), except for what counsel refers to as “additional categories of material that must be preserved” (id.).
The Instant Motion:
The instant application is, in substance, a motion for a preliminary injunction, in that it seeks to restrain defendants, pendente lite; specifically, from discarding material asserted to be of possible probative value (Schwartz v Lubin, 6 AD2d 108 [1st Dept 1958] [standards for preservation order are equivalent to those for preliminary injunction]). Plaintiff’s counsel recognizes this by referring at certain junctures to this application in injunctive terms (Hack Affirm. 34-35).
Plaintiff’s counsel has conceded that the requested preservation order is nearly a “word-for-word duplicate” of the Keir and MDL preservation orders already in existence (Order to Show Cause Ex. E).
Apart from the existing federal orders which already restrain defendants, they are additionally bound by the federal statutory document preservation strictures applicable under the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), 15 USC 78u-4. The federal complaint in In re UnumProvident Corp. Secs. Litig., supra, similarly accuses Unum of implementing the decade long scheme alleged herein and in the other related actions (Def. Ex. C). Under the PSLRA, a defendant “shall treat all documents, data compilations (including electronically recorded or stored data), and tangible objects that are in the custody or control of such person and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure” (15 USC 78u-4 [C] ). Plaintiff’s requested preservation order does not directly add to the protections already afforded under the PSLRA because “[t]he PSLRA provides for the possibility of court-ordered sanctions in response to a party’s ‘willful failure’ to comply with the duty to preserve relevant evidence” (Pirelli Armstrong Tire Corp. v LaBranche & Co., Inc., 2004 WL 1179311 at *23 [SD NY]; see, 15 USC 78u-4  [C] [ii]). However, the federal protections are not directly binding here. It is true that the federal court could, and probably would, enforce the PSLRA and the court’s orders. But, this court could not independently enforce a breach of the obligations to preserve.
Plaintiff’s counsel urges that the requested preservation order is necessary due to alleged “destruction” of e-mail messages by Unum in the past (Hack Affirm. 18-35). He refers to an August 22, 2003, decision of District Judge Cote in Keir v UnumProvident Corp. [*5](2003 WL 21997747 [SD NY]) (Order to Show Cause Ex. B), which took note of a loss by Unum of e-mail backup tapes notwithstanding the prior December 27, 2002, order of that court requiring the preservation of such material (Order to Show Cause Ex. M).
Plaintiff’s counsel’s portrayal of the foregoing finding by the District Court may be exaggerated. To be sure, the District Court made note of Unum’s loss of certain e-mail and made suggestions as to what Unum might have done to minimize the risk of such loss.[FN2] However, it thereafter expressly recognized that the loss of the e-mail, caused by the overwriting of backup tapes, was not deliberate, but inadvertent: “In sum, through the fault of no one, but as a result of IBM’s actions, some of the email from the six days was lost in the creation of the December snapshot” (2003 WL 21997747 at *13; see also, id. [expressly characterizing the overwriting of Unum’s e-mail files as having been done “inadvertently”]).[FN3]
The court can envision one or more scenarios in which the federal preservation orders might not be sufficient protection for plaintiff in this state action. For example, if the federal court did not require the production of certain materials or documents, and this court did require such production. A separate preservation order in this court might then be necessary as to those materials. Similarly, the allegations in this action might well diverge from those in the federal actions, causing a divergence in the scope and details of discovery, thus requiring a separate order.
Accordingly, the motion for a preservation order is granted.
Defendants are directed to promptly notify plaintiff’s counsel if the Federal preservation orders are amended or vacated, and if defendants or any of them are accused by the court or their adversaries, of violating either of said orders. [*6]
In the course of opposing this motion, defendants have identified numerous objections to categories of documents envisioned in plaintiff’s proposed preservation order (Order to Show Cause Ex. E), on grounds of overbreadth.
Defendants object to the requests for documents envisioned by paragraphs 1 through 6 of the proposed order, which, broadly stated, seek: (Request No. 1) disability claim files; (Request No. 2) documents evidencing claims handling policies and procedures; (Request No. 3) board of directors’ documents relating to claims handling policies and procedures, personnel files, contracts with Unum subsidiaries; (Request No. 4) payroll records, incentive plan documents, long-term disability reserve reports, documents relating to long-term disability reinsurance; (Request No. 5) medical evaluation of claims, medical staff policies and procedures regarding disability claims; and (Request No. 6) e-mail back-up tapes, computer hard drives, and disks containing communications relating to the foregoing categories.
As indicated at the outset, the complaint sets forth detailed allegations of a systematic effort to promote broad-based denial of disability claims, without regard to their merit (e.g., Complaint 6). Consequently, the foregoing categories of documents are within the scope of “all matter material and necessary in the prosecution or defense” of this action (CPLR 3101 [a]). Moreover, in light of the allegations of a widespread corporate scheme, plaintiff’s requested time frame of January 1994, and on, does not breach the bounds of relevance, given the putative class, which is defined as certain claimants whose long-term disability benefits were “denied, terminated or suspended on or after December 17, 1998” (Complaint 33). Any such terminations or suspensions might well have had their genesis in policies originating three or four years earlier.
Defendants further object to the document requests envisioned in paragraph 7 of plaintiff’s proposed preservation order (Order to Show Cause Ex. E). That paragraph, through resort to multiple subparagraphs, seeks numerous varieties of documents regarding “Other Insurers, as defined in the Complaint.” This refers specifically to the following allegation in the complaint:
Upon information and belief, UnumProvident’s scheme was touted by the company to other disability insurance companies throughout the United States, including New York Life Insurance Company, National Life Insurance Company of Vermont, John Hancock Life Insurance Company, Provident Mutual Life Insurance Company of Philadelphia, The Equitable Life Assurance Society of the United States, General American Life Insurance Company and other companies yet to be identified (“Other Insurers”).
Defendants assert that the stated insurance companies are six of the largest insurers in the world.
The discovery process should not “be used as a tool of harassment or for the proverbial ‘fishing expedition’ to ascertain the existence of evidence” (Reuters Ltd. v Dow Jones Telerate, Inc., 231 AD2d 337 [1st Dept 1997]; see also, Konrad v 136 E. 64th St. Corp., 209 AD2d 228 [1st Dept 1994]). The complaint centers around Unum’s claims handling practices, and the possible injury caused to disability claimants who were denied coverage by Unum. [*7]Although the complaint attempts to define the putative class expansively, as including persons insured by the Other Insurers, and administered by Unum, none of the Other Insurers are defendants in this action apart from New York Life. Requiring Unum or the other defendants to produce documents relating to the Other Insurers, at least at this juncture, is beyond the reasonable scope of the claims asserted herein, and unduly burdensome to defendants. Accordingly, documents relating exclusively to the Other Insurers need not be produced at this time.
Paragraph 7 (c) of the proposed preservation order further seeks documents transmitted to “any State in the United States regarding the claims handling by
UnumProvident . . . .” As defendants note, this presumably relates to documents furnished to state insurance regulators in connection with alleged mishandling of disability claims. To the extent such documents are not covered by privilege, they are relevant.
Paragraph 7 (f) seeks “[a]ll databases, electronic material, tape media, electronic media, hard drives, computer disks and documents” relating to the categories of documents sought in said paragraph, at subparagraphs 7 (a) through (e). Apart from Other Insurers, as discussed above, this request is proper, in light of today’s technological realities (e.g., Zubulake v UBS Warburg LLC, 217 FRD 309 [SD NY 2003]).
Defendants attest that preservation of computer hard drives under the preservation order issued in the MDL resulted in a cost to defendants of more than $1,000,000.00 (Hoehle Aff. 15). The court is not insensitive to the cost entailed in electronic discovery, and would, at the appropriate juncture, entertain an application by defendants to obligate plaintiff, the requesting party, to absorb all or a part of the cost of the e-discovery it seeks, or will seek, herein (e.g., Schroeder v Centro Pariso Tropical, 233 AD2d 314 [2d Dept 1996]; see, CPLR 3103 [a] [“The court may . . . make a protective order . . . regulating the use of any discovery device. Such order shall be designed to prevent unreasonable annoyance, expense, . . . or other prejudice to any person . . . .”]; see also, Zubulake, supra). However, the court will not constrain the production of possibly relevant evidence on account of the later need to allocate the cost.
This constitutes the decision and order of the court.
*Changed from original
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Evan S. Schwartz
Founder of Schwartz, Conroy & Hack