Insurance Companies Hiding Behind Trade Secrets: The Battle to Obtain Claims Handling Manuals in Litigation

Behind every insurance claim denial, every lowball estimate, and every delayed payment, there is a system. Insurance carriers do not handle claims through improvisation — they follow detailed internal manuals, guidelines, playbooks, and training materials that instruct their adjusters on how to evaluate claims, what to pay, what to deny, and how to document their decisions. These documents are among the most important pieces of evidence in insurance litigation, because they reveal whether the carrier’s conduct on a specific claim was consistent with its own procedures — or whether those procedures themselves were designed to minimize payments.

When policyholders or their attorneys request these manuals during litigation, carriers almost universally object. The most common objection is that the manuals constitute protected “trade secrets.” This article examines why claims manuals matter, why the trade secret objection is often meritless, and how California courts have addressed these discovery disputes.

Why Claims Manuals Matter

An insurance carrier’s claims handling manual is the roadmap its adjusters follow when processing claims. These documents typically address:

• Evaluation guidelines: How adjusters should assess the value of different types of losses, what documentation to require, and what valuation methods to use
• Settlement authority: How much an adjuster can approve without supervisory review, when claims must be escalated, and what thresholds trigger additional scrutiny
• Reservation of rights procedures: When and how to issue reservation of rights letters, what language to use, and how to document coverage questions
• Denial protocols: What justifications are acceptable for denying claims, what documentation is required before a denial letter can be issued, and what review processes must be followed
• Special Investigation Unit (SIU) referral criteria:What triggers a referral to the carrier’s fraud investigation unit, and what procedures apply to claims flagged for investigation
• Vendor and contractor guidelines: How the carrier selects and manages preferred vendors, what pricing guidelines those vendors must follow, and what quality standards apply
• Training materials: What adjusters are taught about coverage interpretation, negotiation tactics, and claims resolution

What Claims Manuals Have Revealed

When claims manuals have been obtained through litigation, they have sometimes revealed practices that the carriers would prefer to keep hidden:

• Instructions to adjusters to make initial offers at percentages below the documented value of the claim, with the expectation that policyholders will negotiate upward but still accept less than the full amount owed
• Guidelines directing adjusters to require excessive documentation that is not mandated by the policy or by regulation, creating artificial hurdles that delay or discourage payment
• Training materials that emphasize cost containment metrics and reward adjusters for closing claims below certain dollar thresholds, rather than for accurate and timely indemnification
• Procedures that instruct adjusters to apply exclusions aggressively without fully analyzing whether the exclusion actually applies to the facts of the specific claim
• Vendor management protocols that restrict what contractors and restoration companies can charge, even when those restrictions result in pricing below the actual cost of repairs in the policyholder’s market

These revelations are precisely why carriers fight so hard to keep their manuals out of discovery. The manuals can demonstrate that underpayment is not an accident — it is a feature of the system.

The “Trade Secret” Objection

When a policyholder or plaintiff’s attorney serves a discovery request for the carrier’s claims manual, the carrier’s standard response is to object on trade secret grounds. The argument typically goes like this: the claims manual reflects the carrier’s proprietary methods for evaluating and adjusting claims, and disclosure would give competitors an unfair advantage by revealing the carrier’s internal processes.

This objection is often weak on its face. Insurance claims handling is one of the most heavily regulated activities in the industry. Carriers are required by law to follow specific claims handling procedures, including those established by California’s Fair Claims Settlement Practices Regulations (Cal. Code Regs., tit. 10, §2695.1 et seq.) and the Unfair Insurance Practices Act (Cal. Ins. Code §790.03). A manual that instructs adjusters to comply with these legal requirements contains nothing that could legitimately be called a trade secret — it is simply a restatement of regulatory obligations.

California’s Uniform Trade Secrets Act

California’s Uniform Trade Secrets Act (Cal. Civ. Code §3426 et seq.) defines a trade secret as information that derives independent economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and that is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

To qualify as a trade secret under this definition, the claims manual would need to meet both requirements: (1) the information must have independent economic value from being secret, and (2) the carrier must have taken reasonable steps to keep it secret. Courts evaluating these claims often find that at least one element is lacking:

• Economic value: A carrier must demonstrate that its claims manual contains information that provides a competitive advantage and that disclosure would cause actual economic harm. General claims handling procedures that mirror regulatory requirements do not typically meet this standard. The carrier would need to identify specific, proprietary methodology that goes beyond standard industry practice.
• Reasonable secrecy efforts:Claims manuals are often distributed broadly within the carrier’s organization, shared with third-party administrators, made available to independent adjusting firms, and referenced by vendor partners. The wider the distribution, the harder it is to argue that the carrier has maintained reasonable secrecy.

How Courts Have Ruled on Claims Manual Discovery

Courts across the country have addressed the discoverability of insurance claims manuals, and the weight of authority favors production — typically subject to a protective order that limits how the documents can be used and who can see them.

The Relevance Standard

Courts consistently find that claims manuals are relevant and discoverable in cases involving bad faith, breach of the implied covenant of good faith and fair dealing, and unfair claims practices. The reasoning is straightforward: if the policyholder alleges that the carrier mishandled the claim, the manual that told the adjuster how to handle the claim is directly relevant to whether the carrier’s conduct was reasonable.

In California, discovery is broadly permitted under Code of Civil Procedure §2017.010, which allows discovery of any matter “not privileged” that is “relevant to the subject matter” of the action or “reasonably calculated to lead to the discovery of admissible evidence.” Claims manuals satisfy this standard in virtually any insurance coverage or bad faith case.

Protective Orders as a Compromise

Rather than blocking production entirely, courts frequently order production of claims manuals subject to a protective order. A typical protective order in this context will:

• Designate the manual as “Confidential — Attorney’s Eyes Only” or a similar classification
• Restrict access to the parties’ counsel, experts, and the court — but not to the general public
• Prohibit copying or distribution beyond the litigation
• Require return or destruction of the documents at the conclusion of the case

This approach balances the policyholder’s need for the evidence against whatever legitimate confidentiality interests the carrier may have. Courts have generally held that a protective order adequately addresses any trade secret concerns, and that a carrier cannot use the trade secret objection to completely block production of relevant evidence.

Notable Rulings Ordering Production

Courts have repeatedly rejected the trade secret objection and ordered production of claims manuals. Key rulings include:

• Courts have found that claims handling manuals are relevant in bad faith actions because they establish the carrier’s own standards for reasonable claims conduct — and a carrier that violates its own guidelines has a difficult time arguing that its conduct was reasonable
• Federal courts in California have ordered production of claims manuals in first-party property cases, finding that the manuals are essential to evaluating whether the carrier conducted a thorough investigation and applied the policy terms correctly
• Courts have rejected arguments that production of the entire manual is overbroad, holding that limiting production to only the sections “relevant” to the specific claim would allow the carrier to cherry-pick which portions to disclose and would deprive the policyholder of context
• Some courts have imposed sanctions on carriers that refused to produce claims manuals despite court orders, recognizing that stonewalling discovery is itself evidence of consciousness of guilt

Practical Litigation Strategies for Obtaining Claims Manuals

For policyholders and their attorneys seeking to obtain a carrier’s claims manual, the following strategies can be effective:

1. Request the manual early in discovery. Include a specific request for all claims handling manuals, guidelines, protocols, and training materials applicable to the type of loss at issue in the initial set of discovery requests. Carriers will often delay, so the earlier the request is made, the better.
2. Be specific in the request.Rather than asking for “all manuals,” identify the types of documents sought: claims handling manuals, best practices guidelines, adjuster training materials, vendor management protocols, coverage interpretation guides, and settlement authority procedures. Specificity makes it harder for the carrier to argue the request is vague or overbroad.
3. Anticipate the trade secret objection.In the meet-and-confer letter, proactively address the trade secret issue by offering to stipulate to a protective order. This eliminates the carrier’s most common argument and puts the carrier in the position of having to explain why a protective order is insufficient.
4. Challenge the carrier’s burden of proof. If the carrier objects on trade secret grounds, require it to provide a declaration establishing each element of the trade secret definition. Demand specifics: What information in the manual has independent economic value? What steps has the carrier taken to maintain secrecy? How many people have access to the manual? Has the manual ever been produced in other litigation?
5. Cite regulatory obligations. Emphasize that claims handling in California is a regulated activity, that the carrier is required by law to follow specific procedures, and that a manual documenting compliance with these legal requirements cannot be a trade secret.
6. Request the version in effect at the time of the claim. Carriers update their manuals periodically. The relevant version is the one that was in effect when the claim was handled. Requesting the current manual and the version in effect at the time of the claim ensures that any changes made after the litigation was filed are also discoverable.
7. Use the manual in depositions.Once the manual is obtained, use it during the depositions of the adjusters and supervisors who handled the claim. Comparing the adjuster’s actual conduct to the manual’s instructions can reveal departures from the carrier’s own standards — departures that support a bad faith finding.

The Broader Pattern: Why Carriers Fight So Hard

It is worth stepping back to consider why insurance companies invest enormous legal resources into preventing disclosure of their claims manuals. If the manuals simply instructed adjusters to handle claims fairly, promptly, and in compliance with the law, there would be nothing to hide. The intensity of the fight to keep these documents secret is itself informative.

Claims manuals are not just reference documents — they are the operational blueprint for how the carrier processes billions of dollars in claims each year. The manual determines whether an adjuster looks for ways to pay a claim or looks for ways to deny it. It determines whether an adjuster is trained to investigate thoroughly or to close files quickly. It determines whether the carrier’s system is designed around indemnification or around cost containment.

When a policyholder obtains the manual and it reveals that cost containment was the organizing principle, the carrier’s position in litigation becomes significantly weaker. That is why the trade secret objection is deployed so reflexively — it is not about protecting competitive advantage. It is about preventing the jury from seeing how the system actually works.

Sources & Further Reading

• Shernoff Bidart Echeverria LLP— One of the pioneering policyholder bad faith firms in California, Shernoff Bidart Echeverria has litigated claims manual discovery disputes for decades. As the firm has observed in its published commentary, “the claims manual is the carrier’s own confession of how it handles claims — which is exactly why they fight so hard to keep it hidden.” Search for their publications on insurance bad faith discovery.
• Merlin Law Group— Policyholder attorneys at Merlin Law Group have written extensively on the discovery of claims manuals and the trade secret objection. Search for their blog posts on claims manual discovery and bad faith litigation.
• Policyholder-side coverage commentary— Published analyses from the national policyholder-side bar have addressed claims-manual discovery in the context of commercial policyholder litigation.
• California Uniform Trade Secrets Act— Cal. Civ. Code §3426 et seq., available through the California Legislative Information website (leginfo.legislature.ca.gov).
• California Code of Civil Procedure §2017.010 et seq.— California’s civil discovery statutes, available through the California Legislative Information website.
• Rutter Group, California Practice Guide: Civil Procedure Before Trial— Chapter 8 (Discovery) addresses the trade secret privilege in the context of civil discovery, including the burden of proof and the role of protective orders.
• United Policyholders— The nonprofit consumer advocacy organization has published resources on understanding the insurance claims process and the importance of carrier internal documents. Search for resources at uphelp.org.