Reinsurance Focus

The case involved an insurer’s denial of coverage for damage to a fishing vessel. The discovery dispute related to an insurer’s production of its reinsurance contract and reinsurance reporting, but with all information related to loss reserves redacted as confidential. The court compelled the insurer to produce the reserve information, citing cases holding that such information is relevant to whether the insurer acted in bad faith in denying coverage. The court was not persuaded by the insurer’s attempt to distinguish this reinsurance case from typical first party insurance disputes, finding that the plaintiff had shown that “the purported re-insurer in this case, is actually the front-line insurer.” McAdam v. State National Insurance Co., Case No. 12cv1333 (USDC S.D. Cal. Nov. 1, 2013).

This post written by Michael Wolgin.

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In 2005, former New York Attorney General Eliot Spitzer commenced a civil enforcement action against AIG, AIG’s former CEO, and AIG’s former CFO Howard Smith for allegedly engaging in fraudulent reinsurance transactions. In response, Smith submitted a Freedom of Information Law (“FOIL”) request seeking the disclosure of the AG’s communications with the press regarding the complaint. A New York Supreme Court held that the AG’s office has a responsibility and obligation to gain access to Spitzer’s personal email account to determine if it contains documents that should be disclosed in accordance with the FOIL request. The court, however, also allowed the AG’s office to appeal the issue. On appeal, the Appellate Division determined that Spitzer is a necessary party and remanded the case without deciding the issue so the Supreme Court can order Spitzer’s joinder. Smith v. New York State Office of the Attorney General, No. 515758 (N.Y. App. Div. Oct. 17, 2013).

This post written by Abigail Kortz.

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Plaintiff Mine Safety Appliances (“MSA”) moved to compel discovery from defendant insurers on coal-dust-related claims submitted to the insurers by other, non-party, policyholders as well as the insurers’ agreements and communications with non-party reinsurers about the insurance policies issued to MSA. A special master denied the motion to compel regarding information related to other policyholders’ claims but ordered the production of the reinsurance agreements as to those insurers from whom money damages were sought. The master also ordered that, insofar as any insurer had asserted a late notice defense, it must produce all communications relating to when notice of a claim by MSA was received or communicated to its reinsurers. The Delaware state court rejected arguments from MSA and defendant insurers regarding the propriety of the special master’s ruling and approved it in all respects. Mine Safety Appliances Co. v. AIU Ins. Co., Case No. 10C-07-241 (Del. Super. Ct. June 6, 2013).

This post written by Ben Seessel.

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On a motion to compel, a United States District Court in South Dakota ordered production of a reinsurance agreement entered into between Ability Insurance Company and Ability Reinsurance (Bermuda) Limited. Plaintiffs sought production of the document in connection with their claims for breach of contract, bad faith, fraud, and misrepresentation against several Ability entities related to the scope of coverage under a long-term care insurance policy. The court found the agreement to be relevant to the case because “reinsurance agreements and other agreements between the parties are relevant to the makeup of an insurance company and could lead to the discovery of admissible evidence.” The court stated that any concerns regarding confidentiality should be addressed through protection orders. Burke v. Ability Insurance Company, Case No. CIV. 12-4051 (D.S.D. May 31, 2013).

This post written by Abigail Kortz.

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Chevron Corporation and the Republic of Ecuador have been engaged in contentious litigation for nearly two decades in various courts over alleged environmental contamination of oil fields in Ecuador. An Ecuadorian court finally issued a multi-billion dollar judgment against Chevron, prompting Chevron to file for arbitration under the rules of the U.S.-Ecuador Bilateral Investment Treaty (“BIT”). For use in the BIT arbitration, Ecuador applied for ancillary discovery from an individual, John Connor, and his company, GSI Environmental, in the Southern District of Texas pursuant to 28 U.S.C.A. § 1782. Section 1782 authorizes district courts to assist discovery efforts of litigants before foreign and international tribunals, and includes private international arbitration.

The Fifth Circuit has previously held, in Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999), that an international arbitration tribunal is not a “foreign or international tribunal” under § 1782. The district court, compelled by this precedent, denied the discovery request. Ecuador appealed, arguing that Chevron was judicially estopped to contend that the BIT arbitration was not an “international tribunal.” The Fifth Circuit agreed after finding that Chevron had deliberately taken inconsistent positions on the availability of § 1782 discovery” and that “if Chevron is permitted to shield itself under Biedermann against Ecuador’s current discovery request, it will have gained an unfair advantage over its adversary.” The Court thus concluded that Chevron was judicially estopped from asserting its legally contrary position and stated, “we need not and do not opine on whether the BIT arbitration is in an ‘international tribunal.’” Republic of Ecuador v. Connor, Nos. 12-20122, 12-20123, 2013 WL 539011 (5th Cir. Feb. 13, 2013).

This post written by Brian Perryman.

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An insurer denied coverage to a corporate insured for losses sustained at one of its Indiana processing plants under the pollution exclusion, arguing that Michigan law should apply and that Michigan law recognizes such exclusions. The corporation argued instead that Indiana law applied and, thus, the exclusion could not be enforced. After both parties moved for summary judgment on the choice of law issue, the corporation sent discovery requests related to reinsurance and premium calculation information, which the magistrate judge determined were irrelevant to the choice of law issue. In addition, the magistrate judge stated that it was inconsistent for the corporation to claim it needed additional discovery to brief the choice of law issue after they had already moved for summary judgment. The district judge affirmed, holding it was only relevant for the choice of law issue where the insurance premiums were paid, not the rationale for calculating premiums. Visteon Corp. v. National Union Fire Insurance Co., Case No. 1:11-cv-200 (USDC S.D. Ind. June 17, 2013).

This post written by Brian Perryman.

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A Connecticut federal court decided some thorny discovery issues in a reinsurance dispute between Travelers and one of its reinsurers, Excalibur. The suit arose from underlying asbestos claims settled by Travelers, for which it looked to Excalibur and its other reinsurers for coverage.

Holding that New York law applied, the Court identified several operative principles. First, a “follow the settlements” clause in a reinsurance contract requires deference to a cedent’s decision on the allocation of settlement payments among reinsurers. Second, a cedent’s allocation decision, however, is not immune from scrutiny, and must be reasonable. That is, it must be one that the parties to the settlement of the underlying insurance claims might reasonably have arrived at but for the reinsurance. Third, an allocation that violates or disregards the reinsurance contract’s provisions is invalid.

Excalibur argued that as one of Travelers’ reinsurers, it was entitled to challenge Travelers’ allocation of its settlement among the reinsurers. It argued that Travelers’ allocation was unreasonable, and contrary to the reinsurance policies, and that it was therefore entitled to discovery of information pertaining to the allocation decision. Travelers responded that the “follow the settlements” clause meant Excalibur could not challenge, question, or inquire into Travelers’ settlement and allocation decisions. Holding that Excalibur’s position accorded better with New York law, the court allowed Excalibur’s requested discovery. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., No. 3:11-CV-1209 (USDC D. Conn. April 8, 2013).

This post written by John Pitblado.

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A putative class of plaintiffs brought an action against PHH Corporation, alleging violations of the Real Estate Settlement Procedures Act, arising from a purported scheme of alleged “kickbacks” to the defendant mortgage insurer from its captive reinsurer to which transfers no actual underlying risk was transferred. The plaintiffs sought documents relating to any government investigation of PHH. After PHH came under investigation by the Consumer Financial Protection Bureau, PHH provided certain discovery in the course of the investigation to the CFPB. The plaintiffs thereafter renewed their requests, seeking all documents produced to the CFPB. After defendant refused, the court granted plaintiffs’ motion to compel the following categories of documents produced to the CFPB:

“(1) corporate information and organization charts showing the PHH entities involved with PHH’s captive reinsurance arrangements’ position and the PHH corporate hierarchy; (2) documents relating to the genesis of PHH’s captive reinsurance arrangements; (3) documents describing or relating to PHH’s captive reinsurance arrangements and how they operated; (4) financial statements; (5) contracts and agreements with private mortgage insurers; (6) actuarial, accounting reports, summaries, audits and statements; (7) invoices, bills, receipts, dividends and records of payments from the captive reinsurance trusts or in any way related to PHH’s captive reinsurance arrangements; and (8) disclosures, communications to borrowers regarding mortgage insurance and captive reinsurance.”

Munoz v. PHH Corp., No. 1:08-cv-0759-AWI-BAM (USDC E.D. Cal. Feb. 22, 2013).

This post written by John Pitblado.

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In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

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In a coverage dispute involving an insurance policy covering a limestone quarry, a court reviewed the insurer’s documents related to reinsurance coverage, and denied the insured’s motion to compel. While the court agreed with the insured that the insurer’s reinsurance coverage was “clearly relevant” to the dispute, the specific discovery requests sought only “information relating to communications and documents exchanged between [the insurer] and any reinsurer.” Because the documents that the insurer had withheld from production to the insured were “internal documents” between the insurer and its underwriter, and not materials “exchanged” with a reinsurer, the documents were “not responsive” and the court denied the motion to compel. Continental Material Corp. v. Affiliated FM Insurance Co., Case No. 10-cv-02900 (USDC D. Colo. July 30, 2012).

This post written by Michael Wolgin.

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