Washington Court of Appeals Rules That Insurer's Claims Policies and Procedures Are Not Trade Secrets
Plaintiff McCallum sued Allstate Insurance Company, alleging bad faith and violation of the Washington Consumer Protection Act (“CPA”). Plaintiff theorized that Allstate maintained a national policy to drag out the claims process, making it unnecessarily difficult and expensive for UIM insureds to obtain their benefits.
In an effort to establish her theory, McCallum issued discovery requests seeking Allstate’s claims manual, claims bulletin, Claim Core Process Redesign Implementation Training Manual, and documents related to a third party consultant firm’s efforts to revamp Allstate’s claims procedures in the 1990s. When Allstate resisted disclosure of these documents, McCallum filed a motion to compel, prompting Allstate to seek a protective order.
The court granted Allstate a protective order, based in large part upon declarations from its assistant Vice President and a local claims representative, who asserted that the documents were confidential trade secrets. Under the terms of the order, the documents were only to be used in litigation, and only disclosed to McCallum, her attorneys, and her experts. McCallum’s attorneys then deposed the Vice President and claims representative, who failed to support their prior declarations. In particular, the witnesses: (1) had no knowledge of the amount of time, manpower, or financial resources that had been expended in developing their policies and procedures, and (2) had no knowledge of how their policies and procedures differed from their competitors. McCallum then used those depositions in order to convince the trial court to vacate its existing protective order.
On appeal, the Washington Court of Appeals affirmed vacation of the protective order. The court “begins with a presumption of openness,” and to overcome that presumption in the context of discovery, the party seeking a protective order must establish “good cause.” To establish “good cause,” one must demonstrate specific prejudice or harm that will result if not granted, ideally supported with specific examples.
Allstate asserted that the claims procedures constituted trade secrets, and their disclosure would destroy their inherent value. To constitute trade secrets, claims procedures must: (1) derive independent economic value from not being known or readily ascertainable by others and (2) be subject to reasonable efforts to maintain their privacy. The Washington Court of Appeals found that Allstate had engaged in reasonable efforts to maintain the privacy of their claims procedures by seeking protective orders in this and other prior litigation. However, the deposition testimony from Allstate’s assistant Vice President and claims representative failed to support the proposition that Allstate’s claims procedures were materially different than their competitors, and failed to demonstrate that significant time, money and manpower had been expended to develop the claims procedures. Thus, Allstate failed to prove that the claims procedures derived independent economic value from not being known to others. Accordingly, the Court of Appeals found Allstate’s claims procedures were not trade secrets and affirmed the trial court’s vacation of the protective order.
Mar. 31, 2009 - 36624-0 - Colleen Mccallum, Respondent V. Allstate Ins. Co., Petitioner
