$45 M discovery dispute heading to the Arkansas Supreme Court

TEXARKANA, Ark. -- Taking their argument to the Arkansas Supreme Court, Foremost Insurance Company is appealing Circuit Court Judge Kirk Johnson's Order to produce all of its claim files. The insurance company estimates the required production of 600,000 claim files would cost around $45 million.

The lawsuit involves allegations that after a loss or damage to an insured's property, insurance companies did not disclose or pay the general contractors' overhead and profit. Although the insurance companies paid the claims to the insurers, the plaintiffs state they are entitled to the additional money. The complaint states that general contractors' overhead and profit is 20 percent of an estimated construction job cost and is a paid-for-benefit to the customer.

Lead plaintiffs' attorneys, John Goodson and Mike Angelovich filed the putative class action complaint in the Circuit Court of Miller County, Arkansas on Sept. 8, 2004.

The defendants attempted to move the case to federal court in 2005, but federal Judge Robert T. Dawson remanded it to the Miller County Circuit Court.

The discovery dispute is not new and has been occurring in this case between the plaintiffs and various insurance companies for more than a year. In a hearing on July 16, Judge Johnson order Foremost Insurance to produce all of its claim files, even though the defendants estimated the production cost at $45 million.

After Judge Johnson analyzed the costs of production of Foremost's claim files, he believes 90 percent of the costs are for attorneys' fees for removing attorney-client work product, which "can be identified by company clerks for attorney review at a greatly reduced rate of pay."

Foremost Insurance filed a motion of reconsideration and a motion for protective order regarding the overwhelming amount of documents it was ordered to produce. Judge Johnson denied the defendant's motions on Sept. 18.

The judge's order states that all defendants "shall produce unredacted claim files pursuant to discovery requests" and the producing party will bear the production costs. This production is a statistical sampling of claim files with the redaction of any nonpublic personal information; attorney-client or work-product privileged information.

However, the order continues by stating that "defendant Foremost is not a party to the agreements for production of statistical samples and must produce all claims files unless agreement is reached with the plaintiffs within 10 days."

Prior to Judge Johnson's recent order, in late August, Foremost Insurance offered to make all of its claim files available by remote server in defendant's office. Plaintiffs' counsel could select a sampling of 2,000 for Foremost to produce. Plaintiffs' attorneys denied this offer.

Foremost again attempted to end the discovery dispute and in mid September, Foremost sent the plaintiffs a CD with the "same claim field data as the other defendants." Plaintiffs sent back the CD package unopened.

Foremost argues that the "plaintiffs are attempting to manipulate the judicial process in order to gain an unfair advantage over Foremost by forcing Foremost to spend millions of dollars to collect and produce documents with the aim of forcing early settlement."

Seeking a ruling by the Arkansas Supreme Court as to "whether a nationwide class can or should be certified under the laws of 51 jurisdictions," Foremost Insurance has filed a motion to stay with the Miller County Circuit Court.

Chivers v. State Farm. Case No.: 2004-294-3.