Discovery

MISSOURI COURT DENIES RECONSIDERATION OF ORDER QUASHING SUBPOENA OF UN-ISSUED ARBITRATION AWARD

September 4, 2014 by Carlton Fields

Lincoln Memorial Insurance Company and Hannover Life Reinsurance Company of America became engaged in a long-running reinsurance dispute, arising from an allegedly fraudulent scheme by Lincoln and others in the sale of pre-need funeral service contracts. Hannover reinsured some of those contracts. The matter was arbitrated, and Lincoln claim that Hannover wrongfully accused Lincoln of fraud and intentional misconduct during the court of that arbitration.

Ultimately, Lincoln became insolvent and entered into receivership in Texas. Lincoln asserted that Hannover’s conduct in the arbitration was a factor in driving it to insolvency. The Texas Department of Insurance appointed a receiver and issued a permanent injunction, which, among other things, enjoined further arbitration against Lincoln, before the arbitrator ever issued an award.

The Special Deputy Receiver, Jo Ann Howard & Associates, thereafter brought claims in federal court against several entities alleging, among other things, RICO, breach of fiduciary duty, and gross negligence, which purportedly caused or contributed to Lincoln’s insolvency.

As we previously reported, one of the defendants in the action brought by the receiver, National City Bank, subpoenaed the arbitrator in the Hannover Re arbitration, seeking his un-issued award. National City also asserted several special defenses to the receiver’s suit, including failure to mitigate damages. The receiver moved to quash the subpoena and to strike National City’s failure to mitigate affirmative defense. The court granted both motions.

National City thereafter moved for reconsideration and clarification of the Court’s order. Construing the motion as a Rule 60(b) motion to amend, the Court held that National City was not entitled to the “extraordinary relief” available under that rule, as it had not met the high burden of demonstrating “exceptional circumstances” warranting the correction of any error, even if a substantial error had been made, which, the Court duly noted, was not the case. Jo Ann Howard & Associates, P.C. v. Cassity (USDC E.D. Mo. July 15, 2014).

This post written by John Pitblado.

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COURT FINDS COMMUNICATIONS WITH REINSURERS DISCOVERABLE IN COVERAGE DISPUTE

July 14, 2014 by Carlton Fields

A federal court in Minnesota determined that an umbrella insurer’s communications with its reinsurers are discoverable in a coverage dispute. The case is titled National Union v. Donaldson Co., and the focus is on the scope of coverage that National Union is required to provide to its insured under certain umbrella policies in connection with the insured’s liability in two underlying lawsuits. One of the issues in the case is whether a “batch clause” in the primary policy was applicable to the umbrella policies. The “batch clause” affects how many deductibles are applicable, i.e., whether it is possible to “batch claims” under the umbrella policies so that only one deductible should be applied or whether separate deductibles must be satisfied.

The insured filed a motion to compel production of, among other things, National Union’s communications with its reinsurers, arguing that the communications were relevant to its bad faith counterclaim because National Union had taken the position that only a certain amount of policy limits could be available under the primary policy and that it was not possible to “batch claims” under the umbrella policies. The insured contended that what National Union said to its reinsurers on the issue would shed light on the timing of National Union’s view of the batch clause and its application for the primary and the umbrella layers of coverage, as well as National Union’s understanding of the potential indemnity exposure under the various policies. The Magistrate Judge granted the motion without discussion, concluding only that the standard in Rule 26(b)(1) had been met. The District Court overruled National Union’s objections to the Magistrate Judge’s order, noting a split of authority on the discoverability of communications with reinsurers in bad faith cases, and concluding that the ruling was not contrary to law or clearly erroneous.

National Union Fire Ins. Co. of Pittsburgh, Pa. v. Donaldson Co., Inc., No. 10-4948 (USDC D. Minn. June 24, 2014).

This post written by Catherine Acree.

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COURT QUASHES SUBPOENA SEEKING UNISSUED ARBITRATION AWARD

May 28, 2014 by Carlton Fields

After striking the affirmative defense of failure to mitigate, a court quashed a subpoena issued to an arbitrator seeking an unissued arbitration award in a dispute between certain defendants and their reinsurer. The case involved a lawsuit by a state-appointed receiver, Jo Ann Howard & Associates, against numerous defendants stemming from a scheme to defraud consumers in connection with pre-need funeral services contracts issued by Lincoln Memorial. After Howard was appointed, the receivership court stayed the arbitration proceedings between Lincoln Memorial and its reinsurer, Hannover Life Reassurance Company of America. One of the issues pending in the arbitration at the time was Lincoln Memorial’s claim for damages against Hannover arising from Lincoln Memorial’s allegations that Hannover’s arbitration-related conduct had brought Lincoln Memorial to the brink of insolvency.

Two of the other defendants, both banks, raised as affirmative defenses Howard’s failure to mitigate damages. The banks alleged Howard’s decision not to pursue Lincoln Memorial’s claims against Hannover caused Howard’s damages. The banks subpoenaed the arbitrator in the Lincoln/Hannover arbitration to obtain a copy of the unissued arbitration award. The court granted Howard’s motion to strike the banks’ failure to mitigate defense, finding the defense legally insufficient. The defense was not causally related to Howard’s damages claim because Howard’s claims against Lincoln Memorial arose from Lincoln Memorial’s handling of pre-need trust accounts, and not from Lincoln Memorial’s insolvency. Further, a receiver’s ability to recover assets or damages for wrongdoing is important to the public, and allowing such an affirmative defense would encumber a receiver’s ability to perform these functions. Jo Ann Howard & Associates, P.C. v. J. Douglas Cassity, Case No. 4:09CV01252 ERW (USDC E.D. Mo. May 9, 2014).

This post written by Leonor Lagomasino.

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COURT ALLOWS THIRD PARTY DISCOVERY OF BROKER MATERIALS CLAIMED TO BE PRIVILEGED

April 10, 2014 by Carlton Fields

Defendant liability insurers sought discovery from Third Party Aon relating to a dispute between defendants and plaintiff regarding an umbrella coverage program. Aon provided some, but not all responsive documents, citing instructions from Plaintiff Black & Veatch, which asserted privilege objections on behalf of Aon, and provided a privilege log for 41 withheld documents. The defendants moved to compel production of all but two of those documents. In response, Black & Veatch claimed that Aon was acting as a representative of Black & Veatch, that they were made in anticipation of litigation, were subject to attorney-client privilege, and that the documents were thus protected from disclosure. The Court held that the privilege log did not adequately disclose the bases for the assertions of privilege or work product, that it was not evident that Aon acted as Black & Veatch’s agent, that the documents listed were prepared in anticipation of litigation, or that they were confidential communications reflecting a primary purpose of providing legal advice. The Court also held that the plaintiff failed to demonstrate a basis for in camera review, and thus ordered it to produce the documents. Black & Veatch v. Aspen Insurance (UK) Ltd., No. 12-2350-SAC (USDC D. Kan. Feb. 28, 2014).

This post written by John Pitblado.

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COURT COMPELS PRODUCTION OF INFORMATION EXCHANGED BETWEEN INSURER AND REINSURER AS RELEVANT TO CONSTRUCTION OF POLICY

April 9, 2014 by Carlton Fields

In a declaratory relief action brought against the FDIC by the liability insurer for the directors and officers of a bank in receivership, the court resolved a discovery dispute that included a contested request for information exchanged between the insurer and its reinsurer. In compelling the production of the reinsurance information, the court adopted a prior case’s articulation of seven reasons why reinsurance information might be relevant to assist with the construction of policy language: to determine (1) how the insurer has interpreted the provisions in the current lawsuit; (2) whether the insurer’s interpretation has been consistent with the positions taken with insureds; (3) whether the insurer and reinsurer discussed whether the type of claims in dispute would be covered; (4) whether the insurer and reinsurer discussed the insureds’ expectations on the scope of coverage; (5) when the insurer received notice of claims; (6) if the insureds’ claims were untimely, whether the insurer claimed it was prejudiced as a result; and (7) whether the reinsurer was involved in the sales and marketing of the policies in dispute, and if so, what those efforts reflect in terms of the reasonable expectations of the insureds concerning the scope of coverage. Progressive Casualty Insurance Co. v. FDIC, Case No. 5:12-cv-04041 (USDC N.D. Iowa Mar. 10, 2014).

This post written by Michael Wolgin.

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