Discovery

On November 19, 2007, we reported on the denial of a motion to dismiss an action seeking to bar the arbitration of disputes under 43 reinsurance contracts. A district judge has now compelled the production of documents in five categories, finding them relevant to both the claims alleged by Midwest Employers Casualty Company (“MECC”) and the defenses of Legion Insurance Company (“Legion”). The dispute is whether the reinsurance contracts provide for coverage on a “risk attaching” basis (Legion’s contention) or a “loss occurring” basis (MECC’s contention). The court compelled Legion to produce:

• Contracts evidencing reinsurance purchased by Legion for program business on a “loss occurring” basis;
• Documents evidencing the attachment basis of the reinsurance that Legion purchased from MECC;
• Documents showing Legion’s booking of or accounting for reinsurance purchased from MECC;
• Documents showing actuarial support for Legion’s last Schedule F statutory filing relating to its projection of MECC’s ultimate liability and any subsequent projection of MECC’s ultimate liability; and
• Documents showing case reserves and reinsurance receivables by claim, program and/or year relating to Legion’s policies or accounts reinsured by MECC or that otherwise show reinsurance payments that Legion estimated or expected to receive from MECC.

Further detail regarding the dispute is set forth in the memoranda in support of and in opposition to the Motion to Compel. Midwest Employers Casualty Company v. Legion Insurance Company, Case No. 07-870 (USDC E.D. Mo. June 4, 2008).

This post written by Rollie Goss.

In a recent decision, the Fifth Circuit touched on the collateral source rule, which generally prohibits parties from introducing evidence of reinsurance. The plaintiff medical center and its insurer (Western Professional Insurance) alleged that the defendant medical center and other defendants supplied misleading letters recommending a physician the defendants had fired just two months earlier for on-duty use of narcotics. While in the plaintiff medical center’s employ and under the influence of narcotics, the physician sent a patient into a permanent vegetative state. A judgment was rendered against the medical center and in favor of the patient. The plaintiffs sued for misrepresentation and negligence and, in turn, a judgment was rendered against the defendants.

On appeal, the court reversed the judgment against the defendant medical center for insufficiency of evidence, but remanded the case for further proceedings. The court rejected the defendants’ argument that the district court erred in excluding evidence of Western’s reinsurance. The Fifth Circuit noted that, under governing Louisiana law, the collateral source rule provides that payments made to, or benefits conferred on, an injured party from sources other than the tortfeasor, notwithstanding that such payments or benefits cover all or part of the harm for which the tortfeasor is liable, are not credited against the tortfeasor’s liability. The defendants’ attempt to introduce evidence of reinsurance at trial was “nothing more than a classic argument against the collateral source rule.” Kadlec Medical Center v. Lakeview Anesthesia Associates, No. 06-30745 (5th Cir. May 8, 2008).

This post written by Brian Perryman.

The National Council on Compensation Insurance, as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool, filed a complaint against AIG alleging that AIG engaged in a fraudulent scheme to avoid paying their proportional share of the insurance costs in the residual market for workers compensation insurance. The parties, unable to agree on several terms of a protective order to govern the exchange of confidential information, turned to the district court to resolve their differences on numerous provisions.

The Court made the following key determinations: First, the ‘inadvertent production’ provision would require the receiving party to ‘return, sequester, or destroy’ the information that the producing party claimed had been inadvertently produced. The Court explained that the 2006 Amendments to Rule 26 added the option of sequestration. Second, the Court acknowledged the need for a two-tier definition of confidentiality (“confidential” and “highly confidential – outside counsel’s eyes only”) but limited “highly confidential” documents to those that “(a) must have current applicability to defendant’s business operations, and (b) more likely than not would cause competitive harm to the business operations of the disclosing party.” Lastly, the court rejected defendants’ request to include a provision in the protective order that would require the Court to award damages for any breach of the protective order. National Council on Compensation Ins., Inc. v. American International Group, Case No. 07 C 2898 (USDC N.D.Ill. Dec. 11, 2007).

This post written by Lynn Hawkins.