Wheaton, Ill., April 18, 2011--Property/casualty insurers face a growing threat from the recovery of communications stored electronically, according to Anthony "Tony" Zelle, a speaker at the recent AAIS Main Event conference held in Ponte Vedra Beach, Fla.

Zelle is founder of the law firm Zelle McDonough & Cohen LLP and chairman of the insurance law committee of the Defense Research Institute.

The Main Event is a conference devoted to product-related issues of strategic concern to property/casualty insurers. It is sponsored by the American Association of Insurance Services (AAIS), a national advisory organization that develops policy forms and rating information used by more than 700 P/C insurers throughout the U.S.

In his address on "emerging exposures," Zelle said that "developments in federal law, state law, and civil procedure are increasing [demands for] discovery of electronically stored information.

"The collection, cataloguing, and review of electronically stored information leads to massive expenditure that [a defendant's] insurer does not have control over," he said.

"The cost of collecting the information can dwarf other defense costs and cancel out the value of a claim," he added. "Ninety percent of that [effort] produces material that has no bearing on the case whatsoever. It is a search for a needle in a haystack."

Even if judges invoke the doctrine of "proportionality" to place limits on the amount defendants (and their liability insurers) must pay for electronic discovery, Zelle says the threat of it alone increases the "nuisance value" of suits and the pressure on insurers to settle.

"If your policyholders are not aware of the need to preserve electronic information, the nuisance value of the litigation increases dramatically."