Discovery

UNDERLYING INSURED DENIED RIGHT TO SEEK DISCOVERY FROM FORMER REINSURER

October 7, 2008 by Carlton Fields

A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

COURT ORDERS THE PRODUCTION OF DOCUMENTS RELATING TO ANTICIPATED LATE NOTICE DEFENSE FROM REINSURER’S CLAIM FILE, DESPITE CLAIMS OF PRIVILEGE AND WORK PRODUCT

October 2, 2008 by Carlton Fields

AIU Insurance Company (“AIU”) sued its reinsurer, TIG Insurance Company (“TIG”), for breach of contract arising from underlying coverage litigation pertaining to asbestos claims. After AIU, an excess carrier, settled claims, it provided written notice to TIG under the reinsurance contracts. Suspecting the possibility of a late notice defense to AIU’s claim, TIG undertook an investigation, including an audit under the “access-to-records” clause of the reinsurance contracts. Prior to the audit, TIG retained outside counsel, who provided TIG’s claims investigators with advice pertaining to the conduct of the audit. The investigators took notes during the audit and submitted them to outside counsel.

During the course of the litigation, AIU issued discovery requests, seeking information pertaining to TIG’s late notice investigation and records audit. TIG provided some documents, and withheld others (including the records made during the audit) on the basis of attorney-client privilege and the work product doctrine. While the Court upheld a few of TIG’s assertions of privilege (as set forth in a privilege log TIG produced in conjunction with its objections to AIU’s discovery requests), it ordered TIG to produce the majority of the withheld documents. As to the claim of attorney client privilege, the Court held that TIG failed, for the most part, to demonstrate with specific evidence that each document withheld in fact contained communications between TIG and its attorneys reflecting the request for or provision of legal advice. As to the claims of work product protection, the Court generally found that the documents were not clearly prepared in anticipation of litigation, and TIG failed to rebut the presumption that documents prepared by or for an insurer prior to a coverage decision are prepared in the ordinary course of the insurer’s business, and thus are not entitled to work product protection. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 28, 2008).

This post written by John Pitblado.

INSURED’S MOTION TO COMPEL DOCUMENTS GRANTED

September 17, 2008 by Carlton Fields

The plaintiff, Bunge North America, sought liability insurance coverage related to its environmental liabilities from, among others, Travelers Casualty. Bunge moved to compel certain documents from Travelers, which motion was granted by a magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. June 4, 2008) (magistrate’s order). Travelers sought review of the magistrate judge’s order with the district judge. The motion for review was denied in its entirety. The district court made three rulings affirming the reasoning used by the magistrate judge. First, Bunge was entitled to agreements Travelers had with a broker, and the date and amount of payments made to the broker, relating to Bunge insurance policies. These documents were found to be relevant to the issue of whether Bunge properly notified Travelers of its claims via the broker, Travelers’ putative agent. Second, Bunge was entitled to documents relating to a similar claim paid to a different Travelers insured on the same environmental liability issue. This information was relevant to Travelers’ knowledge of the issues and the consistency of its positions, as well as Bunge’s bad faith claim. Finally, the district judge refused to disallow the possibility that Bunge could collected its fees and costs associated with the motion to compel. Although the magistrate judge had found that the relevance of the requests were not apparent on their face, the district judge stated that relevance can be clarified by a party after the fact, so the issue of whether the opposing party’s objections are “substantially justified” (the standard to avoid the payment of fees and costs) was subject to further litigation before the magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. July 3, 2008) (district judge’s order).

This post written by Brian Perryman.

COURT FINDS REINSURANCE INFORMATION RELEVANT TO STATUTORY BAD FAITH CLAIMS; DEFENDANT COMPELLED TO PRODUCE

August 26, 2008 by Carlton Fields

Plaintiff, Cameron Parish School Board (“the School Board”) filed a complaint against RSUI Indemnity Company for breach of contract for failure to timely and properly adjust covered losses, and for bad faith in violation of several Louisiana statutes. The School Board filed three separate motions to compel against the defendant, one of which was a motion to compel the production of reinsurance information. Following in camera review of certain documents withheld by the defendant on privilege grounds, as well as a review of three separate privilege logs, the court concluded that even though the reinsurance information was not relevant to plaintiff’s breach of contract claim, the information might be probative of bad faith, and therefore relevant to plaintiffs’ statutory claims. As such, the court ordered the Defendant to produce items listed on their Underwriting Log. Cameron Parish School Bd. v. RSUI Indem. Co., Case No. 2:06-cv-1970 (W.D.La. July 23, 2008).

This post written by Lynn Hawkins.

REINSURER FAILS IN ATTEMPT TO OBTAIN DOCUMENTS DUE TO FOLLOW THE FORTUNES PROVISION IN FACULTATIVE CERTIFICATE

July 16, 2008 by Carlton Fields

Argonaut Insurance Company reinsured Hartford Accident and Indemnity Company under a facultative certificate which covered a $1 million general liability policy, which was subject to the terms, conditions, and limits of liability set forth in the facultative certificate. Hartford retained $250,000 under the facultative certificate, and Argonaut reinsured 50%, or $375,000, of the $750,000 above Hartford’s retention. Hartford issued three primary policies over a number of years and paid $5 million to settle products liability claims, allocating the amount equally to the three primary policies. Hartford later agreed to pay $54 million to buy back its primary policies and some excess policies it had issued. The issue with respect to the reinsurance became how the losses were allocated by year.

Argonaut sought documents to explore potential inconsistencies in allocations over the years, but Hartford contended, and the district court agreed, that a follow the fortunes clause made such an argument irrelevant, since the allocation had been made in good faith, was reasonable and was within the terms of the applicable policies. Hartford represented that it had issued over 175 policies to this insured over 30 years time, that many were totally unrelated to the single policy that Argonaut reinsured, and that it would take more than 12,000 hours to collect and conduct a preliminary review of the documents sought by Argonaut. At the same time, the court granted a motion to compel by Hartford seeking documents relating to Argonaut’s reinsurance and knowledge of the underlying claims, finding that Argonaut had put such documents at issue in one of its defenses to Hartford’s Complaint. Hartford Accident and Indemnity Co. v. Argonaut Insurance Co., Case No. 06-1813 (USDC D. Conn. Apr. 25, 2008). The court denied a motion for reconsideration, finding that requiring that Hartford provide all of the underlying insurance policies to its reinsurer would undermine the follow the fortunes doctrine.

This post written by Rollie Goss.