Claims Denial Lawyers – Claims Manuals

Virtually all insurance lawyers would like to see the “claims manual” each insurance company has made for its use.  Being able to access that claims manual is discussed in a 2020 opinion from the Northern District of Texas, Dallas Division opinion styled, Jose Chavez v. Standard Insurance Company.

Chavez had a wrist problem.  He applied for long term disability (“LTD”) benefits which Standard paid beginning September 2016.  Standard requested a medical referral in July 2017, which resulted in termination of Chavez’s LTD benefits.  During the considerable pretrial skirmishing, Chavez made a request for Standard’s “internal rules, guidelines, protocols, or other similar criterion” related to Chavez’s claim.  Standard moved for a protective order, claiming that its Claims Manual constituted a trade secret.  To avoid a discovery dispute, Standard agreed to produce the Claims Manual subject to the entry of a protective order to protect from public disclosure.  The Court entered a protective order, granting confidentiality status to the relevant documents.  Nearly two years after the parties agreed to the protective order, Chavez challenges Standard’s confidentiality designation and seeks to unseal the cover page and a 195-word excerpt from Standard’s Claims Manual.

The Fifth Circuit has made clear that the public “has a common law right to inspect and copy judicial records.”  This right promotes the trustworthiness of the judicial process, curbs judicial abuses, and provides the public with a better understanding of the judicial process, including its fairness, and serves as a check on the integrity of the system.  Even information that may not be of particular interest to the public is subject to the presumptive right of public access.  This right, however, is not absolute and merely establishes a presumption of public access to judicial records.  The Fifth Circuit has not assigned a particular weight to this presumption, nor has it interpreted this presumption as creating a burden of proof.  The cases that have recognized a common law right of access do agree that the decision as to access is one best left to the sound discretion of the trial court.  In determining whether to seal judicial records, “the court must balance the public’s common law right of access against the interests favoring nondisclosure” and consider “relevant facts and circumstances of the particular case.”

The requirement of maintaining documents under seal is more stringent than the “good cause” requirement for the issuance of a protective order.  However, the United States Supreme Court explained that the common-law right of inspection has bowed before the power of a court to insure that its records do not serve as sources of business information that might harm a litigant’s competitive standing.”  Relying on the words of the Supreme Court, courts have held that “in general, compelling reasons sufficient to outweigh the public’s interest in disclosure and justify sealing court records exist when such court files might have become a vehicle for improper purposes, such as the use of records to . . . release trade secrets.

Here is some of the important take-away from this opinion and the way Courts look at this issue:

Chavez argues that the Court should remove the confidentiality designation on the cover page and certain excerpts of Standard’s Claims Manual.  Chavez claims that the excerpts he seeks to unseal “contain nothing sensitive or harmful to Standard’s business.”  The Court disagrees.  Courts have routinely found that insurer’s claims-handling guidelines are trade secrets.  Unsealing Standard’s Claims Manual could certainly harm Standard’s competitive standing.  For instance, competitor insurance companies could duplicate or reconstruct Standard’s claims-handling procedures, information which is “particularly valuable to small insurance companies without resources to develop their own policies.”

Standard has demonstrated through the affidavit of its employee Leo Suzuki that it incurred substantial expense in the creation of its guidelines, treats them as confidential and proprietary trade secrets, and does not willingly or voluntarily provide access to this information to individuals not affiliated with Standard.

The Court does not diminish the value of the common law right of access.  But the public policy reasons for protecting trade secrets are compelling.  If trade secrets were not safeguarded by courts, litigants would be forced to choose between fully presenting their claims or defenses (losing trade secret protection) or foregoing their claims or defenses (potentially losing their case).  Moreover, this would extend litigation and decrease efficiency of the discovery process.  In this very case, Standard produced its Claims Manual subject to an agreed protective order rather than engage in lengthy discovery disputes with Chavez.  Chavez is now asking this Court to alter the confidentiality status of Standard’s Claims Manual nearly two years after the entry of an agreed protective order and after Standard relied on the Court’s protection in disclosing its internal documents.  The Court declines to assist Chavez in this bait-and-switch.

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