A recent decision by the United States District Court, Southern District of New York, in Matter of September 11th Liability Insurance Cases, 2007 WL 9731666 (SDNY 2007) [Click here to view case], demonstrates that to avoid sanctions under the Federal Discovery rules, it is not sufficient to show that the litigant was instructed by counsel that documents generally were to be preserved when specific documents damaging to that parties’ case were withheld. The decision also illustrates that the obligations to produce documents created in a computer system encompass the obligation to produce any copies maintained in paper form if the electronic version is no longer accessible.
Zurich and its outside counsel represented to the Federal Court during the proceedings that there would be plenty of evidence on the issue of whether the Port Authority of New York was ever an additional insured under the binder issued by Zurich, resulting in the denial of the Port Authority’s motion to dismiss the declaratory judgment complaint. While the evidence before the District Judge showed that outside counsel met with Zurich shortly before the litigation commenced to remind it of its obligations with respect to preservation of evidence, the Court found that Zurich and its law firms had possession of a printed copy of a critical insurance policy document and failed to produce it to Plaintiff’s counsel over a long period of time. After providing Zurich and its counsel with the opportunity to explain why this document had not been produced, the Court rejected the claim of inadvertence and found that Zurich and its counsel were at fault.
The District Court imposed sanctions under the Federal E-discovery Rules in the amount of $500,000 under FRCP 37 jointly and severally against Zurich and its counsel for misconduct under FRCP 37 for Zurich’s failure to timely produce the insurance policy maintained on Zurich’s computer system and an additional $750,000 in sanctions against them for frivolous litigation conduct under FRCP 11.
The Court observed that bad faith is not required to be shown in order to warrant the imposition upon the adverse party of e-discovery sanctions.