R & R Sails Inc. d/b/a Hobie Cat Co. v. Insurance Company of Pennsylvania, 251 F.R.D. 520 (S.D. Cal. 2008)

This case involves a claim for insurance proceeds arising from a fire that destroyed the plaintiff’s manufacturing plant in Australia. The Plaintiff sought in discovery “electronic or handwritten daily activity records/logs which are generally kept with an adjuster’s notes and telephone call records.”

Due to the insurance company’s failure to produce such records initially and after discussions between counsel, the Plaintiff involved the Court in the discovery dispute. At the discovery hearing, counsel for the insurer contended that “no daily logs or telephone records had been produced to Plaintiff because no daily logs or telephone records were maintained by Defendant’s insurance adjusters.” Opinion at 522.

At the hearing, “[t]he Court expressed skepticism about counsel's claim.” The type of records Plaintiff sought are routinely created and maintained by insurers and are often highly relevant in cases involving a claim of bad faith, such as here. The Court ordered the insurance company to produce either all daily activity logs or a verified declaration that it did not possess any such logs.

Rather than “find” the allegedly non-existent records, the insurance company filed an affidavit of the senior adjuster, declaring that “[t]here were no daily activity logs or telephone record logs that were created or maintained in connection with plaintiff’s claim.” Opinion at 522-523. However, just days before the deposition of the senior adjuster, the insurance company “found” the records. At his deposition, the senior adjuster “[c]onceded on the record that his declaration . . . was incorrect and that a claim log was maintained electronically by Defendant, separately from the paper-form claim file that had been produced to Plaintiff.” Opinion at 523. The adjuster also represented that all of the additional records had since been produced to Plaintiff. This also proved to be false. Counsel for the insurance company failed to produce all of the records (which totaled only 18 pages) and did not make a full production until the day before the deposition of another employee of the insurance company who had initially handled the claim.

Plaintiff sought sanctions, which the insurance company tried to avoid by claiming its discovery missteps were just “honest mistakes.” Though conceding that the senior adjuster’s affidavit was incorrect in stating that the claim log did not exist, Defendant tried to explain this inaccuracy by contending that the adjuster “did not associate Plaintiff’s document request with the electronically-stored records which are maintained on his computer rather than hard-copy paper form.” According to the adjuster, the “computer system records are kept on a computer system that is separate from my file materials and I did not have a practice of printing them out to put in my file.” Opinion at 524-525.

The Court rejected the insurance company’s explanation. “The Court cannot find that a reasonable inquiry was made into whether Defendant possessed discovery to Plaintiff's requests, and therefore the Court does not find Defendant's incorrect certifications to be substantially justified.” Opinion at 525. The Court imposed monetary sanctions of $39,900 against the insurer and its legal counsel jointly and severally, for attorneys’ fees and costs incurred by Plaintiff. Further, the Court precluded use of any documents and testimony relying upon documents or electronically stored information that was requested by Plaintiff but was not produced by Defendant in a timely manner.

As courts face a greater number of discovery disputes involving information and records stored electronically by insurance companies, the courts will continue to gain an understanding of the types of electronic information/records created and stored by insurance companies. With this insight going forward, more courts are likely to “express skepticism” when faced with an insurance company’s contention that no such records exist.

Read the Opinion