Discovery

Reinsurance communications were held not discoverable in a commercial coverage dispute. By way of background, PBM Products, LLC sued its competitors, Mead Johnson Nutrition Company and Mead Johnson & Company, for allegedly engaging in a false advertising campaign against formulas manufactured by PBM. On November 10, 2009, PBM won a $13.5 million judgment. Mead Johnson had a commercial general liability policy issued by National Union Fire Insurance Company and a commercial umbrella liability policy issued by Lexington Insurance Company. After the verdict, National Union filed a declaratory judgment action based on untimely notice and because the damages imposed by the jury were not covered under the policy. Mead Johnson counterclaimed against National Union and Lexington for breach of contract and seeking a declaration that Mead Johnson was entitled to coverage. The Court entered summary judgment on the issue of late notice in favor of the Insurers. Mead Johnson appealed and the Seventh Circuit reversed summary judgment because there had been no factual development concerning the issue of harm.

On remand, the district court revisited a pending discovery dispute. The magistrate judge had earlier granted Mead Johnson’s request with respect to: (1) the underwriting files; (2) communications between the insurers’ reinsurers; (3) the number of times Paul Hastings was retained by the insurers to defend “personal and advertising injury” claims during the relevant time period; and (4) the insurers’ manuals or marketing materials. Specifically with regard to the reinsurance communications, the court found that because the term “personal and advertising injury” was not ambiguous, communications with reinsurers regarding the meaning of claim terms were irrelevant. National Union Fire Insurance Co. of Pittsburgh, PA. v. Mead Johnson & Co., Case No. 3:11-CV-00015-RLY-WGH (USDC S.D. Ind. Mar. 10, 2014).

In a dispute over coverage under a liability policy for directors and officers of a failed bank, the court compelled certain documents from the insurer covered by a discovery request seeking “documents relating to any communications with any reinsurer about the claim at issue.” While some of the documents were deemed privileged based on submitted declarations, the court found that the basis for withholding other documents was not sufficiently supported or described in the insurer’s privilege log. The court also compelled certain documents shared between the insurer and the reinsurer, notwithstanding the insurer’s assertion of the common interest doctrine. The court explained that although the insurer and reinsurer shared commercial or financial interests, the insurer failed to demonstrate that it shared the requisite “identical legal interest” with the reinsurer. Bancinsurer, Inc. v. McCaffree, Case No. 2:12-cv-02110 (USDC D. Kan. Oct. 24, 2013).

This post written by Michael Wolgin.

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The case involved an insurer’s denial of coverage for damage to a fishing vessel. The discovery dispute related to an insurer’s production of its reinsurance contract and reinsurance reporting, but with all information related to loss reserves redacted as confidential. The court compelled the insurer to produce the reserve information, citing cases holding that such information is relevant to whether the insurer acted in bad faith in denying coverage. The court was not persuaded by the insurer’s attempt to distinguish this reinsurance case from typical first party insurance disputes, finding that the plaintiff had shown that “the purported re-insurer in this case, is actually the front-line insurer.” McAdam v. State National Insurance Co., Case No. 12cv1333 (USDC S.D. Cal. Nov. 1, 2013).

This post written by Michael Wolgin.

See our disclaimer.