By John Patzakis
Domus BWW Funding v. Arch Insurance Company is a recent decision focused mostly on issues and challenges related to preservation of Electronically Stored Information (ESI) in a large enterprise. It is an instructive case for in-house counsel, as it demonstrates how avoidable eDiscovery failures can lead to potentially devastating court sanctions.
Case Background
In Domus BWW Funding, LLC v. Arch Insurance Company (decided August 12, 2024), Plaintiffs brought an insurance coverage claim against Arch Insurance for defense costs related to an underlying civil matter. In its first eDiscovery failing, Arch Insurance did not issue a litigation hold until four years after having constructive notice of the claim.
Employees at Arch Insurance identified relevant ESI, but due to what the court identified as a lack of supervision by counsel, critical potential evidence was mishandled. Arch Insurance’s In-house counsel did not follow up with the paralegal tasked with executing an ESI search, the parameters of which both parties agreed to. Additionally, Arch Insurance inadvertently deleted key emails during a data migration in the summer of 2023.
The Court criticized Arch Insurance’s handling of the ESI search, describing the delay as indicative of “counsel’s disdain” for its discovery obligations. The Court found Arch Insurance’s actions caused prejudice to the Plaintiffs in the form of delays, costs and lost evidence, justifying sanctions under Rule 37(e)(1). The Court ruled that the Plaintiff could introduce evidence of Arch Insurance’s eDiscovery failures at trial and would issue a jury instruction as an evidentiary sanction.
There are three key takeaways from this case:
- Arch Insurance’s Main Failing was Lacking an Established eDiscovery Process.
Arch Insurance’s challenges centered on its complete lack of an existing process to address eDiscovery preservation. Arch Insurance and their counsel failed to issue a timely legal hold. And when the collection did finally occur, it was highly reactive, haphazard, resulted in inadvertent destruction of ESI, and required the manual efforts of custodians because Arch Insurance had no enterprise-capable collection capability.
Having an established and demonstrable eDiscovery process will not only reduce costs and risk, but it will also demonstrate to the court that your organization takes its eDiscovery obligations seriously. And this case shows that a lack of established eDiscovery process will leave the court with the opposite impression.
- Court Faults Arch Insurance’s Unsupervised Manual Collection
Arch Insurance improperly relied on custodians to collect ESI without attorney supervision. Courts have repeatedly criticized this practice. (See E.E.O.C. v. M1 5100 Corp., (S.D. Fla. July 2, 2020), district court excoriates defense counsel for allowing the practice of unsupervised custodian ESI self-collection, declaring that the practice “greatly troubles and concerns the court.”)
This again is a symptom of a lack of established eDiscovery process. Without a clear workflow with automated reporting, tracking, transparency and technical execution, it is difficult for attorneys to effectively supervise such a disjointed and ad-hoc exercise.
- Arch Insurance Failed to Take Advantage of a Targeted Search
While the parties stipulated to a targeted and proportional keyword search protocol to identify and collect potentially relevant ESI, Arch Insurance lacked an enterprise capability to execute such a search. Properly targeted preservation initiatives are favored by the courts and enabled by next generation software to search data sources quickly and effectively in-place throughout the enterprise. The ability to collect data directly and transparently from custodian laptops, desktops, Microsoft 365 and other cloud sources into a RelativityOne / Relativity workspace is a game-changer that enables Attorney’s to begin review in hours rather than weeks. But without such a capability, an organization must revert to manual efforts that either result in costly data over-collection or faulty, non-defensible effort.
In sum, Domus BWW Funding is an illustration of what often happens when an organization does not have a systematic eDiscovery process in place. An effective process is established through the right people, processes and technology, such as the capabilities of the X1 Enterprise platform. X1 Enterprise Platform significantly streamlines the eDiscovery workflow with targeted, in-place search and collection with direct upload to a review platform, thereby significantly reducing costs and risk, allowing in-house counsel to demonstrate to the court that they take their discovery obligations seriously.