12-27-11; Once litigation starts, it is a mistake to hide documents or other discoverable information

It is imperative employers and insurance companies involve defense counsel in discovery requests and maintain and turn over to defense counsel all related documents for a legal determination of whether such information is privileged or need be disclosed in accordance with interrogatories.

In LM Ins. Corp. v. ACEO, Inc., the court granted attorney fees after the employer failed to turn over very significant documents, which the employer claimed did not exist, or at least, could not be found. The documents were thereafter obtained from a former employee and proved to be singularly unfavorable to Defendants.

The court reasoned sanctions were warranted given a prior order directing employer to respond to discovery requests and thereafter the employer's refusal to abide by the court’s order. Regardless of the fact defense counsel never asked individuals to search their own computers or files for the documents and the employer never instructed employees to maintain documents following the initiation of litigation, all information should be searched, diligently found, and turned over to defense counsel for appropriate disclosure.

Additionally, employers need to be sure all information given to their insurance company is accurate. The court also granted sanctions based on a failure to respond to interrogatories on the separate issue of the employer misrepresenting to the insurance company

1.    What type of business it was—in this claim saying it was a temporary staffing company rather than an employee leasing company;

2.    What its total payroll exposure was

3.    What companies it was affiliated with, and

4.    Whether there were any outstanding workers' compensation claims.

As a result of these alleged misrepresentations, the insurance company claimed the premium was significantly underestimated by perhaps millions of dollars. Moreover, because one of the employer’s affiliated companies had an outstanding premium debt, it wasn't even eligible for coverage.

Obviously, the more exposure, the higher the premium ought to have been. In brief, the employer’s application represented its payroll exposure as $67,000. The insurance company estimated the premium at $2,838. Yet, in fact, the employer’s actual payroll was between $29 and $35 million putting the premium the employer ought to have been paying in the neighborhood of $4 million. We consider that a pretty substantial underpayment.

Again, to avoid preventable excess exposure such as attorney fees and other discovery sanctions, involve defense counsel in all interrogatory requests, maintain all documents related to the matter, and direct employees involved to actually find such information for the determination of whether it need be disclosed. The employer and insurance company arguing it could not find such information will not have a successful defense to sanctions if such information later comes to the light.

This article was researched and written by Nathan S. Bernard, J.D. who can be reached at nbernard@keefe-law.com