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Discovery

DISTRICT COURT QUASHES ARBITRATOR’S NON-PARTY SUBPOENA

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The U.S. District Court for the North District of Illinois has granted a motion to quash an arbitration subpoena directed to a non-party for her deposition. The court noted a Circuit split as to whether an arbitrator is authorized to subpoena pre-hearing discovery from non-parties. The court sided with the Second and Third Circuits, holding that the plain language of Section 7 of the FAA does not authorize arbitrators to issue subpoenas for depositions of non-parties outside the physical presence of the arbitrator. The court noted that opinions from the Fourth and the Eighth Circuits had permitted such discovery under certain circumstances. Accordingly, the subpoena was quashed. Ware v. Peacock, Inc., Case No. 10-2587 (N.D. Ill. May 7, 2010).

This post written by John Black.

COURT COMPELS DISCLOSURE OF REINSURANCE POLICY

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Federal Rule of Civil Procedure 26(a)(1) requires parties to disclose certain information at the outset of the case, including “any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” Pursuant to this rule, a federal magistrate judge recently ordered the American Red Cross to disclose a copy of its reinsurance policy, which the Red Cross had resisted on grounds that the damages claimed in the suit would not reach the $1,000,000 threshold to trigger any potential reinsurance coverage. The Court granted the plaintiff’s motion to compel production of a copy of the entire reinsurance policy. The Court discredited Red Cross’s counsel’s valuation of the case based on certain factual allegations in the complaint as speculative, particularly given claims for punitive damages and attorneys fees, noting that even a remote possibility of exposure to a risk warrants disclosure of an applicable insurance policy. Hartman v. American Red Cross, 1:09-cv-01302 (USDC C.D. Ill. May 11, 2010).

This post written by John Pitblado.

DISTRICT COURT RULES AGAINST TRAVELERS IN DISCOVERY DISPUTE

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On February 25, 2010, the US District Court for the Eastern District of Missouri issued a Memorandum and Order resolving a discovery dispute in Sunnen Products Co. v. Travelers Cas. and Surety Co. At the outset, the Court ruled on a minor issue ordering Travelers to produce any documents withheld based solely on boilerplate, introductory objections. Further, the Court granted Sunnen’s motion to compel information related to similar policies, claims and lawsuit of other insureds finding that the Interrogatories at issue were not ambiguous, prejudicial or overly burdensome at this stage. Explaining that Travelers could raise such issues at the motion in limine stage or at trial, the Court ordered production of a limited class of responsive documents (as proposed by Sunnen). The Court also ordered production of a relevant Reinsurance Agreement as well as certain audits concerning Sunnen’s claim for coverage. Finally, the Court ruled that Sunnen was entitled to discovery of a list of all Missouri law firmed engaged by Travelers, or engaged and consented by Travelers, to defend claims against an insured whose Other Policy placed a duty to defend on Travelers. The Court explained that this information was relevant to Travelers’ claim that Sunnen’s choice of arbitration counsel in the underlying action prejudiced Travelers. Sunnen Products Co. v. Travelers Cas. and Surety Co. of Am., Case No. 09-00889 (E.D. Mo. Feb. 25, 2010).

This post written by John Black.

DISCOVERY RESTRICTION IN ARBITRATION CLAUSE HELD NOT UNCONSCIONABLE

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An arbitration provision in an employment contract provided that each party to the arbitration could take one fact deposition, depose experts, request documents, and take additional depositions if authorized by the arbitrator for good cause. A California trial court held the limit on depositions to be unconscionable, refused to sever the discovery limit provision and denied a motion to compel arbitration. The California Court of Appeals reversed, finding that such limits on discovery were permissible in arbitration, in that it provided the arbitrator with discretion to permit further depositions without setting an extraordinarily high standard for obtaining further depositions. The Court also held that a contractual provision that the arbitrator, rather than a court, should interpret and implement the arbitration provision was permissible, especially in light of court decisions at both the state and federal levels holding that arbitrators have the authority to resolve disputes over the meaning of specific terms of an arbitration agreement. Dotson v. Amgen, Inc., Civil No. B212965 (Cal Ct. App. Feb. 3, 2010).

This post written by Rollie Goss.

EVIDENTIARY PRIVILEGES DEEMED WAIVED BY SHARING DOCUMENTS WITH REINSURER

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Last year, a defendant insurer filed an unsuccessful motion for protective order concerning subpoenas to the defendant’s reinsurers; the court more recently declined to reconsider that ruling. The issues presented in the underlying litigation included the defendant’s alleged conduct and representations in selling coverage to the plaintiff insureds, and in denying that coverage. The defendant sought to protect documents relating to positions it took with its reinsurers in the ordinary course of business and arbitrations attempting to secure coverage from the reinsurers for the plaintiffs. In denying the motion, the court found the discovery was “undoubtedly” relevant to the plaintiff’s lawsuit since it could include impeachment evidence on the question of whether defendant denied the existence of coverage, or reveal motives suggesting bad faith. The court rejected assertions of the attorney-client and work product privileges because no specific prejudice would result without the protective order, and because an insurance company waives any privilege if it shares its counsel’s documents with a reinsurer when the parties’ interests are not aligned. The defendant’s interests were not aligned with the interests of the reinsurers because the defendant engaged in two contested arbitrations with the reinsurers. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. May 1, 2009).

On the defendant’s motion for reconsideration, the court found the defendant did not show an intervening change in the law or newly discovered evidence warranting reconsideration. Rather, the defendant relied on several older cases which the court found distinguishable. The court further clarified that it granted the plaintiff’s discovery requests in their entirety, without reservation. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. Feb. 4, 2010).

This post written by Brian Perryman.