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).
Discovery
PRIVILEGE DISPUTES CONTINUE IN “RENT-A-CAPTIVE” CASE
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).
COURT GRANTS REINSURANCE INTERMEDIARY LEAVE TO AMEND PLEADING AND ISSUES RULING ON DISCOVERY DISPUTES
In 2004, General Fire & Casualty, an Idaho insurance company, filed a Complaint against Guy Carpenter, a reinsurance intermediary. After the deadline set forth in the Court’s scheduling order, Guy Carpenter filed a motion with the court for leave to amend his complaint (for the fourth time) to add a statute of limitations affirmative defense. Plaintiffs opposed, arguing that the statute of limitations was inapplicable to the action, and therefore amending the pleadings would be futile. The Court disagreed, concluding that the defendant established good cause for modifying the scheduling order under FRCP 16(b) and therefore should be given leave to amend the pleadings under FRCP 15(a).
The Court also addressed Plaintiffs’ Motion to Compel responses to discovery requests. The requests are too numerous and detailed to explain here. The Court granted a majority of Defendant’s requests relating to: (1) contingent commission/steering claims; (2) “finite” contracts and risk transfer issues; and (3) broker duties and training. General Fire & Casualty Co. v. Guy Carpenter, Case No. CV 05-251-S-LMB (D. Idaho, March 2, 2007).
UK Court enjoins depositions in US lawsuit
In the autumn of 2006, facultative reinsurance specialists left Benfield to join Aon. Although the principal individuals involved worked in the UK, there were allegations of conspiracy and other misconduct in both the UK and the US. Benfield filed suit in US District Court in New York in October 2006, and in the UK the following month. The UK proceeding proceeded towards a trial in March 2007, while the US proceeding proceeded into discovery without a trial date being set. When it became apparent that Benfield would seek to depose critical witnesses in the US suit prior to the UK trial, while trial preparations were underway, the UK Court enjoined Benfield from taking the depositions until after the UK trial. Although reluctant to take action that would interfere with the US suit, the UK Court noted the slow pace of progress of the US suit, and articulated nine factors that it took into account in reaching its decision. This is a very interesting opinion dealing with the “coordination” and relationships between a UK and a US proceeding. Benfield Holdings Limited v. Aon Limited, [2007] EWHC 171 (Queen's Bench Feb. 21, 2007).
In mid-March, 2007, Aon announced it reached “a global and comprehensive settlement with Benfield… relating to former Benfield facultative reinsurance employees…who will be joining Aon on April 1.” Under the terms of the settlement, Benfield will receive payments over time totaling more than $18 million dollars.
Court orders production of documents regarding reinsurance of similar risks
In an action seeking reinsurance for trucking risks, in which the reinsurer alleged that the reinsurance had been placed in breach of various binding guidelines and agreements, a magistrate judge granted, in part, a motion to compel the reinsurer to produce documents relating to its underwriting process and declination of other trucking risks. The Court believed that the documents were discoverable to rebut the reinsurer's position. Scottsdale Insurance v. American Re-Insurance Co., 8:06-cv-00016 (D. Neb., Feb. 2, 2007)