Forensic Update

Reflections on information management within the legal and regulatory arena

Archive for January, 2011

Business damages measurement: Lost profits or business valuation?

Posted by Johnny Lee on January 26, 2011

In business litigation matters, financial experts are often asked to provide an opinion on how to quantify economic damages suffered by an injured party.  In the most recent article, “Business damages measurement: Lost profits or business valuation?” experts discuss two common damages estimation approaches:  1) business valuation and 2) lost profits.  While the approaches are based on some common economic and financial principles, differences in how they are calculated can lead to very different outcomes.  The article also addresses such questions as:

  • Can one apply both methods to the same damages calculation?
  • Can lost profits exceed business value?
  • Is one method more certain, or does it provide a better estimate, than the other?
  • Do certain circumstances indicate that one method must be used?

Read more in Business damages measurement: Lost profits or business valuation?

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Posted in Forensic Accounting, Fraud, Records Retention | Tagged: , , , , | Comments Off on Business damages measurement: Lost profits or business valuation?

Evidence Spoliation Insurance…welcome news or moral hazard?

Posted by Johnny Lee on January 18, 2011

In early December, a division of Chartis Insurance (the artist formerly known as AIG), announced that it would offer a new insurance product focused upon evidence spoliation.  Interestingly, the product is designed to guard against claims arising from direct physical loss or damage to items that serve as material evidence in a legal proceeding.  Perhaps it’s the geek and the recovering attorney in me, but a couple of things are notable in this offering.

First, as with any insurance product, there must be a triggering event.  The event here is where the insured party is alleged to have breached its professional duty of care related to the preservation of property that is deemed to have evidentiary value.  The insurance would protect against liability for monetary damages and settlement, as well as defense costs for claims alleging a breach of professional duty.

Second, to be clear, this is not insurance that obviates the need for controls or proper handling of sensitive information, though the level of controls maturity will clearly affect how premia are rated.  This product, at least as initially introduced, does not appear to be aimed at entities protecting their own data.  This insurance offering appears to be geared toward organizations that are “conducting analysis on the property of others” and who, as a result of this analysis, may find themselves “exposed to spoliation as a separate tort” (i.e., sued for the harm caused by losing another party’s stuff—either by the party who owned the lost stuff or by a third party).  In legalese, this insurance protects against claims arising from the failure to preserve property of evidentiary value belonging to others that is in the care, custody, and control of the insured.  (Hint: Think engineering firm or research group conducting a form of benchmarking on data provided by a company.)

Despite the ostensible target market, it will be interesting to see how other vendors (especially so-called “cloud” vendors) react to this sort of insurance offering.  Indeed, there is the old saw—certainly trotted out with great frequency during the heyday of Sarbanes-Oxley compliance—that while you can outsource processes and services, you cannot outsource the risks related to same.  So, this leaves us with the question of whether the (potential) availability of such an insurance product to cloud vendors (and other third parties in possession of sensitive and valuable data) will decrease the diligence of these providers in the protection of these sensitive data.  An even bigger question is what companies hoping to outsource to such vendors should do about this.  It definitely will be an interesting area to monitor over the near term.

Posted in eDiscovery, Information Security, Privacy, Records Retention | Tagged: , , , , , , , , , , , , , , , , , , , , | 1 Comment »

Move to e-Records could increase claims and costs for Healthcare…

Posted by Johnny Lee on January 10, 2011

Electronic medical records have received a great deal of scrutiny in recent months, especially in light of sweeping changes from Washington coupled with mandates at the state level to automate healthcare delivery.  While the premise (and promise) of automation tends to focus on increased efficiencies and cost savings, the irony is that the implementation of electronic medical records (“EMR”) might actually cost providers (i.e., hospitals and medical practices) a lot more in litigation costs and liability insuranceat least in the short term.

According to a new report from Hartford-based Conning Research, underwriters are concerned that there will be a non-trivial increase in medical errors when EMRs are implemented.  This, in turn, will drive up both the number of claims and the related cost of defending same.

The report, entitled Medical Professional Liability in a Changing Health Care Environment, indicates that over 90% of providers have yet to implement EMRs (at least to the extent that would satisfy the federal “meaningful use” standards).   This statistic will change drastically in the coming years, given that ObamaCare intends to add over 30 million individuals to the “new insureds” ranks by 2014.  Providers will rush to adopt this new technology not because of the on-boarding of new insureds so much as the significant federal financial incentives that accrue to those adopting EMRs.

While the report indicates that errors are likely to trend downward over time, it is quite likely that claims could increase substantially as patients find fewer barriers to accessing their own health information and the treatments they receive.  This, combined with the fact that EMRs tend to have more information than their paper-based counterparts, will create a virtual bonanza for plaintiffs’ counsel that specialize in medical malpractice claims, as it will be that much easier to identify when treatments provided depart from recommended treatment protocols.

The ease of access to these eDiscovery “haystacks” (as well as the increased number of potential needles within them) might prove to be an ominous litigation trend facing providers for many years to come.  At a bare minimum, it certainly explains why insurers are twitchy with regard to the adoption of this technology.


See also: Electronic Records Don’t Improve Outpatient Care, Stanford Study Indicates

Posted in ECM, eDiscovery, Information Security, Privacy, Records Retention | Tagged: , , , , , , , , , , , , , , , , | Comments Off on Move to e-Records could increase claims and costs for Healthcare…

Business Chronicle: Smart Data Management

Posted by Johnny Lee on January 6, 2011

“Are you seeking a competitive advantage for your business? Many companies need look no further than the mountains of information generated in the course of doing business and contained in their computer systems.

These days data management isn’t just about being able to respond to litigation, but using a wide range of information to operate more efficiently, better serve customers and sell more products.”

Click here for the full article, written by Randy Southerland of the Atlanta Business Chronicle.

Posted in ECM, Information Security, Records Retention | Tagged: , , , , , , , , , , , , , , , , , , | Comments Off on Business Chronicle: Smart Data Management

ForensicUpdate Year in Review (2010)

Posted by Johnny Lee on January 2, 2011 ranks ForensicUpdate as very healthy.  Thanks to each of you for consuming this content…I hope you’ve found it useful, and I hope to keep you coming back for more.

Healthy blog!

The Blog-Health-o-Meter™ reads This blog is doing awesome!.

Crunching the numbers

This blog was viewed nearly 2,000 times in 2010. There were 35 new posts with numerous pingbacks, re-tweets, likes, and tracebacks from our readers.

The busiest day of the year was October 4th with 132 views. The most popular post that day was eDiscovery meets CMM…a new benchmarking model.

Where did they come from?

The top referring sites in 2010 were,,,, and

Some visitors came searching, mostly for forensic update, social networking forensics, ediscovery, and what is discoverable evidence.

Attractions in 2010

These are the posts and pages that got the most views in 2010.

  1. eDiscovery meets CMM…a new benchmarking model September 2010
  2. Jail Time for eDiscovery shenanigans? Believe it… September 2010
  3. FINRA Fines Firm $1.2 Million for Failure to Archive Email Properly… October 2010
  4. Appearances and Mentions May 2010
  5. About May 2010

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