General contractors obtain commercial general liability (“CGL”) policies to cover their liability for property damage or personal injury. A general contractor might assume that their CGL policy also covers liability for construction defects. In some instances, that assumption is correct. But in others, they might be surprised to find themselves exposed.

The heart of the issue is the interpretation of the term “occurrence” in a CGL policy. These policies cover personal injury and property damage caused by an “occurrence.” An occurrence in turn is defined as an “accident.” But courts in different states do not agree on whether damage due to a construction defect should be considered an accident and therefore a covered occurrence under a CGL policy.

In Kansas, an “occurrence” under a CGL policy includes damage caused by defective work so long as it was not intended or foreseeable. Therefore, a general contractor operating in Kansas generally can expect that its CGL policy will provide coverage for construction defects.

In Missouri, the answer might be very different, depending on what is alleged in the petition. The rule in Missouri has been that a CGL policy will cover tort claims resulting from construction defects but not contract claims. The distinction is odd because it puts the focus on what the plaintiff pleads rather than on what actually caused the defect. However, a recent Missouri Supreme Court case indicates that Missouri courts might begin following a rule similar to Kansas courts and instead focusing on whether the damage was foreseeable, regardless of the claim alleged in the petition.

In Colorado, the state legislature recently decided to reverse the rule followed by Colorado courts. Due to disagreement with the then-current court doctrine, the legislature enacted statutory law that defines damage resulting from construction defects to be an “accident,” in order to cause this type of damage to be covered under CGL policies.

The uncertainty from state to state is troubling for general contractors. But as the recent changes above demonstrate, state courts and legislatures are moving to the view that CGL policies cover construction defects.

It is no secret that we increasingly store and categorize information in digital form. Anyone who has been involved in a lawsuit is familiar with this fact. Companies and individuals now create and store their records electronically rather than in file cabinets full of paper.

Due to electronically stored information (ESI) and the use of e-mail as the primary form of communication, there has been a dramatic increase in the volume of “information” in the hands of the parties in a lawsuit. Long gone are the days where a dozen boxes or file cabinet drawers was the universe of documents. Now a lawsuit can routinely put at issue millions of emails and documents that need to be reviewed.

The process of reviewing this volume of records requires can require an extensive review process. In a traditional large firm, the review is tackled by a small army of people organized into a tiered pyramid. At the bottom is a legion of junior or contract attorneys who perform a first-level review. Their work is reviewed by a tier of more senior attorneys, who also make decisions about particularly important documents. Finally there is another level of even more senior attorneys who compile by topic the essential documents to put into the hands of the partners. All the parties in the case perform a review of their own documents and produce what they consider to be documents responsive to the other side’s discovery requests. Then both parties complete this process for the documents they receive from the other side. And then, depending on the case, both sides may need to continue reviewing and producing documents.

It hardly needs to be said that this review process becomes very expensive. Millions of pages of documents will require thousands of attorney hours to review. In some lawsuits, the document review portion of discovery will comprise the largest cost to the client. In an attempt to hold down costs, lower billing junior or contract attorneys review the bulk of the documents. But this raises an interesting question regarding the quality of the review itself. These attorneys are less experienced and in some instances less knowledgeable about all the facts or law as the senior attorneys.

I’m highlighting this issue because a recent decision from the Southern District of New York describes a technology that could represent the beginning of a change in the ESI review process. In Moore, et al. v. Publicis Groupe, et al., 11 Civ. 1279 (S.D.N.Y. Feb. 24, 2012), U.S. Magistrate Judge Peck approved the use of predictive coding by the parties in order to search and identify documents responsive to discovery requests. (Although the implementation of the technology has been stayed by the plaintiffs’ motion to recuse Judge Peck.)

Predictive coding is a process of teaching a computer program how to identify responsive documents. The computer program has access to and can ‘read’ the universe of information in the ESI. But it needs to be taught how to recognize what is important and what is not. For that, a random sample of documents are pulled from the universe and coded by senior attorneys. The documents can be coded as being responsive to particular discovery responses or as being not responsive to any request.

The coded information is then fed into the program, where sophisticated algorithms read and learn from the coding. The training process is itself iterative. The program is directed to identify a pool of responsive documents. The attorneys review this pool, re-code, and this information is fed back into the program to improve its predictions. Once trained, the computer can be set free to identify responsive documents.

Judge Peck’s decision is fascinating for many reasons, but here are three important lessons. First, Judge Peck held that attorneys can use predictive coding to identify responsive documents and still certify under Fed. R. Civ. P. 26(g) that their client’s production is “complete” and “correct.” In other words, the attorneys do not have to manually view every documents in order to comply with their discovery obligations.

Second, the ‘seed’ process of teaching the computer algorithms to identify responsive documents relies on senior attorneys. This technology is potentially disruptive to the traditional tiered document review model.

Third, will this technology represent the future of ESI review? Right now, predictive coding is relatively new technology in the context of litigation, which means that it is expensive. At this time, it may only make sense in a case involving terabytes of information. As with any technology, however, the price will drop. And then the question becomes, will the months-long document review project — and the bill that follows — be a thing of past?