The issue presented in this case was whether a statutory provision authorizing limited discovery of a defendant’s insurance coverage information authorized pretrial discovery of a nonparty liability insurer’s reinsurance agreements for purposes of facilitating settlement of an underlying tort action. In a 4-3 decision, the court concluded that while such discovery may be appropriate in limited circumstances, such as where the reinsurance agreement was functioning the same way as a liability policy or where the reinsurance agreement was itself the subject matter of the litigation at hand, the present case did not present such narrow circumstances. The dissenting opinion stated that the relevant statute “unambiguously provides for discovery of reinsurance policies, by including ‘any agreement under which any insurance carrier may be liable to . . . indemnify or reimburse for payments made to satisfy the judgment.’” Catholic Mutual Relief Society v. Superior Court of Los Angeles, S134545 (Cal. Sup. Ct. Aug. 27, 2007).
On June 15, 2007, we reported on a ruling by a United States Magistrate Judge compelling the production of a reinsurance agreement and communications with reinsurers in a coverage action. The district court has entered a fairly detailed Order denying motions seeking to vacate the Magistrate Judge's decision. The Court rejected a strict rule against the production of such information, holding that discoverability and relevance should be evaluated based upon the facts of each case. United States Fire Insurance Co. v. Bunge North America, Inc., Case No., 05-2192 (USDC D. Kansas July 23, 2007).
In an insurance coverage case involving fifteen insurance companies and one insured, the insured, Bunge North America, filed a motion to compel discovery relating to reinsurance, loss reserves, claims handling manuals, and document retention policies. The insurers filed a declaratory judgment action against Bune seeking a declaration that under the terms of the policy, they did not have an obligation to defend, indemnify, or reimburse Bunge for damages caused by pollution at one of Bunge’s sites. In various counterclaims and cross claims, Bunge alleged that the insurers acted in bad faith in failing to fairly investigate Bunge’s coverage claims in a timely manner.
The Kansas District Court ruled that the reinsurance agreement, normally beyond the scope of discovery in a declaratory judgment action, was discoverable because Bunge had brought several counterclaims in which it sought a monetary award. Specifically, the court found that reinsurance was relevant “for purposes of rebutting the Insurers’ defense of late notice, for purposes of establishing Bunge’s claims of bad faith and improper handling, and for purposes of reconstructing the terms of any lost policies.” United States Fire Ins. v. Bunge North America, Case No. 05-2192-JWL-DJW (USDC D. Kan. May 25, 2007).
American Re and other reinsurers sued USF&G seeking a declaratory judgment with respect to reinsurance they had issued USF&G that covered asbestos risks. USF&G had agreed to pay approximately $975 million for ultimate distribution to asbestos claimants, while its insured, Western MacArthur Company, filed for bankruptcy. USF&G sought to recover approximately $400 million from its reinsurers. The reinsurers sought discovery of how USF&G had allocated the underlying risks to a single policy year as well as information about the preparation and presentation of the reinsurance claim. USF&G contended that the documents were protected by attorney-client and work product privileges. The lower court had allowed broad discovery, but the appellate panel restricted the scope of discovery to the preparation of the reinsurance claim, which had been covered in a deposition in the underlying case, thus placing the preparation of the claim at issue despite the existence of an applicable privilege. American Re-Insurance Co. v. United States Fid. & Guar. Co., 07 NY Slip Op 04523 (App. Div. First Dept. May 29, 2007).
Diane Koken, the Pennsylvania Insurance Commissioner, is the Statutory Liquidator for Legion Insurance Company and Villanova Insurance Company. In this case, Koken, as Liquidator, sought to recover more than $4 million in premiums and commissions allegedly due to the insurance companies pursuant to a Limited Agency Agreement between Legion and American Patriot Insurance Agency (“Patriot”). Patriot denied liability, alleging Legion perpetrated a fraud upon Patriot in relation to a “Rent-a-Captive” workers’ compensation program. During depositions of two of Legion’s former executives, Defendants’ counsel attempted to inquire into this fraud issue, but counsel for the Liquidator objected on the basis of attorney-client privilege. Defendants filed a motion to overrule the Liquidator’s claim of privilege pursuant to the crime/fraud exception, which the court denied in May 2006. That decision was affirmed in December 2006.
The defendants recently asked the court to overrule the Liquidator’s claim of privilege as to conversations between Legion’s Executive Vice President, Glenn Partridge, and Legion’s General Counsel, Andrew Walsh. While the court agreed that conversations with Mr. Walsh were not per se privileged, the court stated it was not in a position to determine whether the privilege applied because Mr. Partridge has not been deposed. The court agreed to postpone Mr. Partridge’s deposition pending a ruling on the Liquidator’s motion for summary judgment. Koken v. American Patriot Ins. Agency, Inc., Case No. 05-C-1049 (N.D.Ill. March 23, 2007).