Discovery

COURT COMPELS PRODUCTION OF CFPB INVESTIGATION DOCUMENTS IN DISPUTE OVER ALLEGED REINSURANCE KICKBACKS

March 21, 2013 by Carlton Fields

A putative class of plaintiffs brought an action against PHH Corporation, alleging violations of the Real Estate Settlement Procedures Act, arising from a purported scheme of alleged “kickbacks” to the defendant mortgage insurer from its captive reinsurer to which transfers no actual underlying risk was transferred. The plaintiffs sought documents relating to any government investigation of PHH. After PHH came under investigation by the Consumer Financial Protection Bureau, PHH provided certain discovery in the course of the investigation to the CFPB. The plaintiffs thereafter renewed their requests, seeking all documents produced to the CFPB. After defendant refused, the court granted plaintiffs’ motion to compel the following categories of documents produced to the CFPB:

“(1) corporate information and organization charts showing the PHH entities involved with PHH’s captive reinsurance arrangements’ position and the PHH corporate hierarchy; (2) documents relating to the genesis of PHH’s captive reinsurance arrangements; (3) documents describing or relating to PHH’s captive reinsurance arrangements and how they operated; (4) financial statements; (5) contracts and agreements with private mortgage insurers; (6) actuarial, accounting reports, summaries, audits and statements; (7) invoices, bills, receipts, dividends and records of payments from the captive reinsurance trusts or in any way related to PHH’s captive reinsurance arrangements; and (8) disclosures, communications to borrowers regarding mortgage insurance and captive reinsurance.”

Munoz v. PHH Corp., No. 1:08-cv-0759-AWI-BAM (USDC E.D. Cal. Feb. 22, 2013).

This post written by John Pitblado.

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DECLARATORY RELIEF ACTION REJECTED AS A MEANS TO CHALLENGE INTERLOCUTORY ARBITRATION ORDERS FOR LACK OF “RIPENESS”

February 25, 2013 by Carlton Fields

In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

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COURT REFUSES TO COMPEL PRODUCTION OF RELEVANT BUT NON-RESPONSIVE REINSURANCE COMMUNICATIONS

August 15, 2012 by Carlton Fields

In a coverage dispute involving an insurance policy covering a limestone quarry, a court reviewed the insurer’s documents related to reinsurance coverage, and denied the insured’s motion to compel. While the court agreed with the insured that the insurer’s reinsurance coverage was “clearly relevant” to the dispute, the specific discovery requests sought only “information relating to communications and documents exchanged between [the insurer] and any reinsurer.” Because the documents that the insurer had withheld from production to the insured were “internal documents” between the insurer and its underwriter, and not materials “exchanged” with a reinsurer, the documents were “not responsive” and the court denied the motion to compel. Continental Material Corp. v. Affiliated FM Insurance Co., Case No. 10-cv-02900 (USDC D. Colo. July 30, 2012).

This post written by Michael Wolgin.

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COURT ORDERS PRODUCTION OF REINSURANCE AND RESERVE INFORMATION IN INSURANCE CLAIM SUIT, FINDING INFORMATION RELEVANT AND NOT SUBJECT TO THE COMMON INTEREST PRIVILEGE

July 17, 2012 by Carlton Fields

In an insurance coverage case arising out of the sinking and salvage of a dry dock, the insured sought the production of documents concerning reinsurance purchased by its insurer, from the procurement of the reinsurance through the claim submitted to the reinsurer. The insurer resisted production based upon two grounds: (1) relevance; and (2) the common interest privilege, claiming that it and its reinsurer had “a joint legal interest in the outcome of the litigation ….” The insured contended that the reinsurance documents were discoverable and potentially relevant in that the insurer had contended that the insured had fraudulently failed to disclose certain information to it about the dry dock, and the facts considered by the reinsurer in pricing the reinsurance might reveal that the information allegedly not disclosed was in fact known to the insurer. Accepting this argument, the court found the reinsurance file, including information concerning reserves, to be relevant and discoverable.

The court held that the common interest doctrine requires a two-part showing: (1) a common legal, rather than solely commercial, interest; and (2) an exchange of privileged information made in the course of formulating a common legal strategy, with an understanding that the communication would be in furtherance of a shared legal interest. The first element requires an oral or written agreement “embodying a cooperative and common enterprise towards an identical legal strategy.” Finding that the mere status of insurer-reinsurer did not establish these elements, and the fact of the reinsurer merely turning its file over to the insurer was insufficient, the court analyzed the facts and determined that neither of these two elements of the common interest privilege had been satisfied. Accordingly, it ordered the production of the reinsurance information. In a separate order, the court deferred other discovery issues not related to reinsurance to a later hearing. Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Case No. 10-1653 (USDC SDNY July 3, 2012).

This post written by Rollie Goss.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION THAT ARBITRAL PANEL WAS “FOREIGN” FOR PURPOSES OF DISCOVERY STATUTE

July 5, 2012 by Carlton Fields

On an appeal arising out of a foreign shipping contract billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. and Jet Air Service Equador S.A., the Eleventh Circuit held that the arbitral tribunal before which the dispute is pending is a foreign tribunal for purposes of 28 U.S.C. 1782’s discovery rules. Consorcio had applied in the Southern District of Florida to obtain discovery for use in proceedings in Ecuador. These proceedings included both a pending arbitration brought by Jet Air as well as possible other litigation. The district court granted the application and authorized Consorcio to issue a subpoena. Jet Air moved to quash the subpoena and vacate the order granting the application. Jet Air appealed the denial of its motions. The Eleventh Circuit affirmed, concluding that the arbitral panel acts as a first-instance decision maker and permits the gathering and submission of evidence. It resolves the dispute and issues a binding order which is subject to judicial review. Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. June 25, 2012).

This post written by John Black.

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