Among the typical skirmishes in insurance-coverage litigation is the scope of discovery. In seeking discovery in insurance-coverage cases and for insurance bad-faith claims, policyholders seek information from insurers about the underwriting of the policy at issue and the carrier’s handling of the policyholder’s claim for coverage. Disputes arise once the policyholder moves beyond those materials to information showing the general practice of the insurer, how the insurer’s response to the particular insured compares with how it has handled other claims, and the insurer’s own understanding of the policy language as evidenced through claims-handling manuals, training materials, and other types of interpretative aids. See generally Saldi v. Paul Revere Life Ins. Co., 224 F.R.D. 169 (E.D. Pa. 2004); Colonial Life v. Superior Court(Perry) 31 Cal. 3d 785 (1982); Carey-Canada v. Cal. Union Ins., 118 FRD 242 (D.D.C. 1986). One recurring subject has been other-claims information, that is, information in claim files dealing with other insureds.

Policyholders argue that such extrinsic evidence is both discoverable and potentially admissible. A recent case from the Federal Court in the District of Columbia had occasion to address the discoverability information from insurers that is stored electronically. In J.C. Associates v. Fidelity & Guarantee Ins. Co., 2006 WL 1445173 (D.D.C. May 25, 2006), Magistrate Judge John M. Facciola ordered the production of various “other claim” file information in the context of a dispute over application of the “absolute pollution exclusion.” In the earlier days of environmental coverage litigation, policyholders and insurers reached détente on production of the “ten and ten” – the ten oldest environmental claim files and the ten most recent. In this era of ediscovery, however, the J.S. Associates case looked more generally to information that was stored electronically.
In addressing the relevance of claim-file information in general, Magistrate Judge Facciola ruled:
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T]he information plaintiff seeks is clearly relevant. For example, information as to how defendant interpreted the absolute pollution exclusion would qualify as an admission under Rule 801 of the Federal Rules of Evidence and relevant to the claim presented by plaintiff if that interpretation is different from the interpretation that the defendant is asserting in this case.

Id. at *1. The insurer had searched its computerized index of its 1.4 million claim files, which yielded 454 similar claims. The originals were not stored in electronic format, and the court considered the costs of manually reviewing the 454 claim files for relevant information as against the amount in controversy, $124,000. To balance the competing interests, the court required the insurer to scan the originals into a searchable format and directed it to search that population using the terms “1) pollution, 2) pollutant, 3) pesticide, and 4) insecticide.” Id.
For any of the 454 converted files that contained one of the search terms, the insurer was required to manually review the material for privilege. The insurer further was told to log the costs of the privilege review, but to count attorney time only for work “that requires an attorney’s skill and judgment.” Id. at *2. Citing the judge’s own prior decision in McPeek v. Ashcroft, 202 F.R.D. 31, 34 (D.D.C. 2001), the court reserved ruling on further discovery and the costs of any such discovery.
While the law is not uniform, the J.C. Associates decision is consistent with courts that recognize that extrinsic evidence from insurance companies may be offered to show (i) an ambiguity or uncertainty in policy terms, (ii) a coverage-promoting meaning when considered in context, or (iii) the reasonableness of the insured’s proffered construction. The evidence may also block a carrier from advocating a coverage-defeating construction in the particular case. Statements by the carrier may constitute admissions, as Judge Facciola found, or statements against interest. E.g., Gerrish Corp. v. Universal Ins. Co., 947 F.2d 1023 (2d Cir. 1991); Phoenix Ins. Col. v. Glens Falls Ins. Co., 253 F. Supp. 1014, 1019 (M.D. Fla. 1966) (state filings); Greer v. Northwestern Nat’l Ins. Co., 743 P.2d 1244 (Wash. 1987); Allegheny Airlines Inc. v. Forth Corp., 663 F.2d 751, 755 (7th Cir. 1981); Aetna Cas. & Sur. Co. v. Haas, 422 S.W.2d 316, 320 (Mo. 1968); Grinnell Mut. Reinsurance Co. v. Voeltz, 431 N.W.2d 783, 787-89 (Iowa 1988); Ford Motor Co. v. Northbrook Ins. Co., 838 F.2d 829, 833 (6th Cir. 1988).
More generally, “the interpretation given to the same contract by one of the parties in its dealings with third parties . . . has some weight – as demonstrating the past interpretation of at least one of the parties, and also suggesting the reasonableness of that interpretation.” Tymshare, Inc. v. Covell, 727 F.2d 1145, 1150 (D. C. Cir. 1984) (Scalia, J.).
The policyholder’s burden is to offer a construction of the policy language that is both linguistically permissible and reasonable. In discharging its burden of showing a reasonable construction, a policyholder’s proffering extrinsic evidence out of the mouths of insurer witnesses or from their pens or keyboards can be helpful. As one court stated in a related context, “[a]ny suggestion that an insured’s identical interpretation is unreasonable is absurd.” Montrose Chem. Corp. v. Admiral Ins. Co., 5 Cal. Rptr. 2d 358, 369 (Cal. App. 1992).
Often judges seem to take the position that they understand what a particular policy provision must mean when they see it. But that is not the relevant legal question; the task for the judge is not to pick the best construction or the one he or she thinks makes the most sense. Rather, the hermeneutical task is: what construction does the language admit and is the construction being offered a reasonable one? To this end, evidence from claim files and other materials from insurers sheds light – and thus is discoverable and potentially admissible on motions for summary judgment and at trial.