Litigation Management for the In-House Generalist: Insurance, Indemnification and Litigation Holds
April 14, 2015
Managing litigation presents a whole new set of challenges and responsibilities to an in-house generalist’s already crowded plate. This article series (Part 1 and Part 2) introduces the art of litigation management from the in-house perspective with tips for various phases of litigation. This Part 3 discusses three things to consider early in any litigation matter—insurance, indemnification, and litigation holds.
Insurance and Indemnification
In deciding whether to pursue and how to defend litigation, in-house counsel should determine whether insurance coverage exists, provides a duty to defend and/or indemnify, and whether other indemnity rights exist.
Most companies carry insurance policies ranging from the general (e.g., commercial general liability insurance and errors & omissions insurance) to the specific (e.g., data breach insurance, intellectual property infringement insurance). In most insurance contracts, the insurer agrees to both indemnify the policyholder (i.e., pay certain covered losses) and defend the policyholder (i.e., retain an attorney, at the insurer’s expense, to defend the policyholder from covered lawsuits). The “duty to defend” and the “duty to indemnify” are distinct obligations. The duty to defend is triggered when the insured is sued (and sometimes when a suit is threatened) and tenders the claim to its insurer. It generally applies when the insured is potentially covered when comparing the complaint or claims with the terms of the policy. Conversely, the duty to indemnify arises after the insurer’s attorney settles the matter or a judgment is entered against the insured, and the actual terms of the judgment or settlement are covered by the policy. Because of the chasm between potential and actual coverage, the duty to defend is commonly broader than the duty to indemnify. An insurer may accept the defense but “reserve rights” to re-evaluate and potentially deny coverage as additional facts are discovered during the litigation process. When a lawsuit is commenced, review potentially applicable insurance policies carefully, and if there is potentially coverage, tender the claim as soon as possible.
An obligation to indemnify can be contractual or implied. Contractual indemnification clauses are essentially a form of contractual insurance, and the above insurance concepts also apply. One party (the “indemnitor”) agrees to indemnify, defend, and/or hold harmless the other party (the “indemnitee”) from certain losses of or claims against the indemnitee. In some cases, the indemnity covers only losses claimed by a third party – referred to as “third-party indemnity.” In others, the indemnity covers losses claimed by the indemnitee – referred to as “first-party indemnity.” If litigation stems from the conduct of a party who has provided contractual indemnity, review the indemnification provision carefully and tender the claim to that party.
Implied (or “equitable”) indemnity is an obligation imposed by a court instead of a contract. As the name suggests, implied or equitable indemnity turns on principles of equity, fairness, and justice. For example, in jurisdictions recognizing implied or equitable indemnity, if two tortfeasors are both liable for an injury, but one was an active tortfeasor and one a passive one, a court may require the active tortfeasor to indemnify the passive tortfeasor. Discuss with outside counsel whether to bring a cross-claim for implied indemnity against others, being mindful of existing business relationships.
Implementing a litigation hold
Another early step to take in litigation (and where the company is the plaintiff, before a complaint is filed) is to implement a litigation hold. A litigation hold is designed to alert company personnel to the company’s obligation to preserve potentially relevant documents. A litigation hold must be issued once a company should reasonably know that information it possesses is or may become relevant to an action. This duty automatically arises when a party reasonably anticipates litigation, or when a party is served with a complaint. A litigation hold covers all documents and information whether electronic or physically stored. The substance of the litigation hold is as important as its form, so consider the form that fits best with your organization (e.g., an FAQ-based litigation hold versus a more formal litigation hold memo or letter). A litigation hold generally includes:
- A statement that one or more of the company’s entities are suing, has been sued, or that either is reasonably anticipated, and the identification of the parties involved
- A general description of the subject matter including the types of claims and the relevant timeframe
- A reminder of the company’s duty to preserve (and not destroy) relevant documents, and to suspend routine document retention (destruction) practices
- An instruction to preserve documents if in doubt as to their relevance and to discuss any issues or concerns with counsel; and
- Instructions on what to do with potentially relevant documents (e.g., preserve the original copies in a separate location pending collection by the legal department prior to or during discovery)
Consider sending out a custodian questionnaire to accompany the litigation hold, which can be used to identify sources of discoverable materials. Schedule interviews with an initial list of custodians to identify other custodians, learn about the types of information that may be relevant to the matter, and learn where that information is located. Consider a prompt notice to the plaintiff regarding items that will not be not subject to hold to potentially shift the burden to the other party to argue why such materials should be preserved. Periodically remind custodians that they are subject to a legal hold, and track legal hold compliance. It is critical to ensure that your client suspends appropriate elements of its document retention policy for information subject to a legal hold or uses in-place preservation technology to prevent deletion of potentially discoverable materials. The failure to do so can lead to sanctions.
Issuing a litigation hold should be followed by reasonable steps to preserve discoverable documents. A failure to issue a litigation hold can be a factor in assessing spoliation which can significantly jeopardize a party’s chances in later motion practice, and at trial.
The articles on our website include some of the publications and papers authored by our attorneys, both before and after they joined our firm. The content of these articles should not be taken as legal advice. The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views or official position of Robins Kaplan LLP.
Associate General Counsel, Jostens, Inc
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