West Virginia Record

Wednesday, July 24, 2019

Defense Bar says judge's order could hurt businesses, consumers

By Jessica M. Karmasek | Oct 3, 2011

WASHINGTON -- A group of defense attorneys says a protective order entered by a West Virginia court will "seriously and unnecessarily" impede the ability of law enforcement and insurers to protect businesses and consumers from insurance fraud.

DRI, the Voice of the Defense Bar, on Thursday filed an amicus brief with the U.S. Supreme Court in the case of State Farm Mutual Automobile Insurance Co. v. Bedell.

At issue is Harrison County Circuit Judge Thomas A. Bedell's issuance of a protective order that imposes document disclosure and destruction requirements.

The West Virginia Supreme Court of Appeals, in an unanimous decision, initially invalidated the order issued by the circuit court due to conflicts between its requirements and state law.

The state's highest court also invalidated the order due to the absence of any showing whatsoever that existing laws and regulations were insufficient to protect against disclosure of personally identifiable medical records.

However, after the trial court made minor revisions to the protective order, the same state Supreme Court -- less than one year later -- reached the opposite conclusion.

In its brief, DRI argues against the Court's most recent decision.

It says the case is of "significant importance" to its more than 22,000 members and their clients.

"It is estimated that insurance fraud costs Americans more than $80 billion a year, or nearly $950 per family on an annual basis," DRI said in a statement. "The court's decision on this case, if left to stand, will only exacerbate the problem by imposing increased costs of unchecked fraud on American businesses and families."

The protective order was entered in a routine personal injury lawsuit arising out of an automobile accident in West Virginia.

West Virginia insurance regulations protect non-public health information against improper use and dissemination to third parties while authorizing the use of such information to investigate and prosecute suspected instances of fraud. These regulations impose an obligation on insurers like State Farm to report suspected fraud to the West Virginia Insurance Commissioner's Fraud Unit.

In this case, the plaintiff refused to turn over her medical records in connection with her claim, although she was contractually obligated to do so.

The West Virginia courts required the plaintiff to produce the records, but only upon the entry of a protective order that precludes State Farm from using the records in connection with its otherwise authorized fraud-fighting duties.

However, the order conflicts with State Farm's retention and reporting obligations under state and federal laws.

DRI says State Farm's petition for certiorari in the U.S. Supreme Court will raise "several important issues" of federal law that will affect businesses and consumers, including the prevention and detection of insurance fraud, judicial usurpation of legislative and executive power, and the First Amendment.

State Farm argues that the protective order is an unwarranted and unnecessary prior restraint to speech as it has a contractual right to obtain the plaintiff's medical information and a constitutional right to relay it to governmental and fraud prevention entities.

The protective order, DRI notes, also conflicts with State Farm's Medicare obligations. Medicare's conditional payment recovery process requires the retention of medical records for well past the time required for the destruction of records under the protective order.

The trial court's order also conflicts with the laws of other states, raising issues of full faith credit and due process, DRI points out.

"Over-broad protective orders can undermine the adversarial process, and can have unintended consequences that affect far more than the judicial system," Detroit attorney Mary Massaron Ross, First Vice President of DRI, said in a statement.

"The sanctioning of a broad protective order that precludes the disclosure and requires destruction of confidential material that was already lawfully in the defendant's possession constitutes a prior restraint on speech and is a clear conflict with the precedent of this court and several federal courts of appeals."

Ross says DRI recognizes the importance of protective orders as a necessary mechanism to protect sensitive and confidential material.

Frequently, DRI members obtain protective orders to prevent the unnecessary disclosure of trade secrets and other confidential business information that might be obtained through discovery from their clients, she says.

However, that is not the case here.

"This is clearly an over-broad protective order that unnecessarily impedes the ability of State Farm to effectively prevent fraud abuse," Ross said.

Last week, the American Tort Reform Association filed its own amicus brief with the U.S. Supreme Court.

ATRA, a coalition of more than 300 businesses and corporations, argues that the order conflicts with statutory requirements governing insurers and their fraud prevention obligations.

"Typically, 'regulation through litigation' involves situations in which courts, at the urging of plaintiffs' lawyers, impose regulatory requirements on entire industries where legislators and government agencies have not done so, either consciously or through inaction," it wrote.

"This case raises a different, but also troubling, type of regulation through litigation: state court protective orders that impose obligations on litigants and their insurers in areas already tightly regulated by state and federal governments."

Such protective orders, if they become widespread, threaten to create significant confusion for regulated parties, unravel the ability of regulators to properly monitor the industry and investigate fraud, and increase the cost of insurance for the public, ATRA contends.

Also last week, the Washington Legal Foundation filed a brief with the nation's highest court, on its behalf and on the behalf of client Allied Educational Foundation. It urges the Court to review and ultimately strike down the protective order.

WLF, a public interest law and policy center, argues that it would frustrate the efforts of insurance companies to monitor and report insurance fraud.

It also argues that the First Amendment does not allow a trial court to enter a protective order purporting to regulate the retention or dissemination of information that a party obtained independently of discovery in the pending litigation.

"The court below upheld the trial court's extraordinarily broad protective order without attempting to balance or even contend with the insurer's First Amendment interests," WLF Senior Litigation Counsel Cory Andrews said in a statement.

"But the Supreme Court has made clear that such an order seeking to regulate information obtained outside of the discovery process is a content-based prior restraint on speech that is subject to heightened scrutiny," he said.

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