In litigation, the discovery process has always been expensive. With computers and digital technology, though, there are added layers of complexity and cost. Discovery no longer involves just reviewing boxes and boxes of papers. Regardless of the dispute — product liability, employment practices, or directors and officers — discovery now entails exhaustive searches of electronic data. This means sifting through computer hard drives, thumb drives, servers, tapes, e-mail strings, archives, instant messenger dialogue, and so on. Searching electronic data sources consumes huge chunks of time and dollars.

Now let’s consider that 36 billion e-mails are transmitted each day. This pace rises 20 percent annually. Ninety-three percent of all information is now stored digitally, with 70 percent of that never actually printed. A 2007 Kroll survey revealed the following:

· Twenty-five percent of U.S. corporate in-house counsel claim to be current with all case-law developments and regulations relating to electronically stored information (ESI).

· Only half of the respondents said that their organizations had a policy regarding ESI.

· Seventy-five percent report losing time and money because of inefficient ESI processes.

Risk managers simply must seek ways to tame e-discovery costs as a volatile component of litigation expense. This is true regardless of whether a risk manager’s company is fully insured, self-insured, or a blend of the two. Even if the risk manager’s organization has first-dollar insurance coverage, hemorrhaging e-discovery costs can spike an account’s loss ratio. This, in turn, will increase the cost of risk, inflate renewal pricing terms, or perhaps even render an account uninsurable. If a risk manager is self-insured, then e-discovery costs represent a torpedo hit to expense budgets without any cushion from insurance. While risk managers juggle many balls, taming e-discovery costs is within the risk manager’s purview, whether insurance is at play or not.

Thus, risk managers seek to tame the electronic discovery beast. One approach is to hold outside legal defense counsel accountable as a partner in managing e-discovery costs. Most likely, defense counsel will be instrumental in both selecting the e-discovery vendor and overseeing electronic discovery. If defense attorneys view e-discovery costs as a pure pass-through to the client, they will have limited incentive to embrace efficient, cost-saving processes. The key is to fully comply with discovery demands without spinning wheels, wasting time and money, all while avoiding expensive wild goose chases. Make defense lawyers feel that they are partners collaborating with the risk manager in ameliorating e-discovery costs.

In electronic discovery, the most expensive component is the people component. Risk managers must assess the vast number of documents requiring human review multiplied by the hourly rate to avoid exponential cost. A key step for taming e-discovery expenses is to identify early on the kinds of documents that the risk manager’s company must collect. This way, counsel gathers only relevant documents and the client avoids expensive diversions. The risk manager must make sure that somebody accurately defines the scope of the document universe.

Either directly or indirectly, the risk manager’s company must work with an outside vendor to assist the electronic discovery process. Risk managers must observe a vetting process. Does the provider/vendor have the expertise and track record in providing electronic discovery? Do they have authoritative representatives who can testify before judges about processes and results? Increasingly, judges demand competence in electronic discovery from attorneys appearing before them.

Another tactic to tame e-discovery costs is to seek early "meet and confer" sessions with opposing counsel. Often, opposing attorneys can agree to narrow the scope of e-discovery through these efforts. There is no fool-proof guarantee, but frequently this can circumscribe the orbit of electronic discovery.

Risk managers must make sure that someone in the IT department knows enough of the rules of civil procedure to capture and produce computer files, which can later be entered into evidence. In addition, risk managers must identify an in-house attorney who can explain the company’s IT architecture. Further, the risk manager must ensure that the company has a clear document retention policy (refer to the sidebar for guidelines). This policy should factor in all appropriate regulatory requirements and have mechanisms to ensure enforcement of document retention guidelines.

Insurance to Fund e-Discovery

Not to overlook the obvious, but one way to tame e-discovery costs is to shift that expense to an insurance carrier. Clearly, this tactic is not available to companies that totally self-insure. For most firms that buy insurance coverage, they might make a compelling argument that e-discovery is a legitimate portion of the defense costs that an insurance company is obligated to pay. This should not be a difficult argument conceptually. Practically, however, an insurer may balk — or gag — when it sees the e-discovery price tag.

Just as a liability insurance policy would obligate the insurance company to pay legal fees and related expenses for paper discovery, there is no reason why electronic discovery required in the defense effort would be excluded. Ideally, the risk manager has defense-outside-limits coverage pertaining to legal costs. If not, then the risk manager and the policyholder have a different decision. For instance, if defense costs erode policy limits, then do you want to spend those defense dollars on electronic discovery or conserve those policy dollars for settlements or other defense-related activities? This is a rhetorical question, but one with which the risk manager will have to grapple.

Another factor entering into the decision is whether the risk manager’s company has excess coverage above a primary layer and can shift e-discovery costs to one or more excess carriers.

For the risk manager and company with low policy limits and/or defense-within-limits (also known as "self-eroding") coverage, there may be reasons to reconsider tagging e-discovery costs to the insurance carrier. Ultimately, the theory behind insurance is that everyone eventually pays their own freight. Allocating sizable e-discovery costs to an insurance carrier will increase an account’s loss ratio, one factor among many that will be weighed in the cost of future insurance renewals. Depending upon how important it is for a risk manager to keep the loss ratio low, the practitioner may decide to either forego shifting e-discovery costs to an insurance company or perhaps explore e-discovery cost-sharing between the insurance company and the policyholder.

Many risk managers may conclude that the "e" in e-discovery stands for "expensive." Paying attention to the process and following these strategies, however, can help transform that "e" from "expensive" to "efficient."