Reinsurance Focus

Pursuant to a confidentiality order entered by the federal district court, Everest National Insurance Company and Everest Reinsurance Company produced trade secrets, claims data, and other confidential information to Centrix Consolidated LLC and other parties to the litigation. Centrix, concurrently involved in liquidation proceedings in bankruptcy court, was served with a document request by the liquidating trustee for all documents produced in the Everest case, including all documents designated as confidential under the court’s protective order. Centrix looked to the court that had issued the confidentiality order for guidance on how to proceed. The court refused to modify its confidentiality order, finding that Everest had a legitimate business interest in maintaining the confidentiality of the requested documents. Everest Nat’l Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J. Oct. 28, 2010).

This post written by Ben Seessel.

In a dispute between a credit union and CUMIS Insurance Society, Inc., the credit union sought discovery on whether CUMIS had a reinsurer that could indemnify the parties for certain losses at issue in the action. CUMIS objected to disclosing its reinsurer on the grounds of relevancy, and the credit union moved to compel. The court granted the credit union’s motion and ordered CUMIS to produce its reinsurance agreements. The court held that when an insurer is a party to an action, reinsurance agreements to which the insurer is a party must be produced with the insurer’s Initial Disclosures, as required by Federal Rule of Civil Procedure 26(a)(1)(A)(iv). The court further held that the Rule was absolute and does not require a showing of relevance. The court found support in the Advisory Committee Notes to Rule 26, which explain that disclosure of insurance coverage enable counsel to make a “realistic appraisal of the case” for settlement and litigation strategy. Suffolk Federal Credit Union v. CUMIS Insurance Society, Inc., Case No. CV 10-0001 (USDC E.D.N.Y. Oct. 19, 2010).

This post written by Michael Wolgin.

The U.S. District Court for the North District of Illinois has granted a motion to quash an arbitration subpoena directed to a non-party for her deposition. The court noted a Circuit split as to whether an arbitrator is authorized to subpoena pre-hearing discovery from non-parties. The court sided with the Second and Third Circuits, holding that the plain language of Section 7 of the FAA does not authorize arbitrators to issue subpoenas for depositions of non-parties outside the physical presence of the arbitrator. The court noted that opinions from the Fourth and the Eighth Circuits had permitted such discovery under certain circumstances. Accordingly, the subpoena was quashed. Ware v. Peacock, Inc., Case No. 10-2587 (N.D. Ill. May 7, 2010).

This post written by John Black.

Federal Rule of Civil Procedure 26(a)(1) requires parties to disclose certain information at the outset of the case, including “any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” Pursuant to this rule, a federal magistrate judge recently ordered the American Red Cross to disclose a copy of its reinsurance policy, which the Red Cross had resisted on grounds that the damages claimed in the suit would not reach the $1,000,000 threshold to trigger any potential reinsurance coverage. The Court granted the plaintiff’s motion to compel production of a copy of the entire reinsurance policy. The Court discredited Red Cross’s counsel’s valuation of the case based on certain factual allegations in the complaint as speculative, particularly given claims for punitive damages and attorneys fees, noting that even a remote possibility of exposure to a risk warrants disclosure of an applicable insurance policy. Hartman v. American Red Cross, 1:09-cv-01302 (USDC C.D. Ill. May 11, 2010).

This post written by John Pitblado.

On February 25, 2010, the US District Court for the Eastern District of Missouri issued a Memorandum and Order resolving a discovery dispute in Sunnen Products Co. v. Travelers Cas. and Surety Co. At the outset, the Court ruled on a minor issue ordering Travelers to produce any documents withheld based solely on boilerplate, introductory objections. Further, the Court granted Sunnen’s motion to compel information related to similar policies, claims and lawsuit of other insureds finding that the Interrogatories at issue were not ambiguous, prejudicial or overly burdensome at this stage. Explaining that Travelers could raise such issues at the motion in limine stage or at trial, the Court ordered production of a limited class of responsive documents (as proposed by Sunnen). The Court also ordered production of a relevant Reinsurance Agreement as well as certain audits concerning Sunnen’s claim for coverage. Finally, the Court ruled that Sunnen was entitled to discovery of a list of all Missouri law firmed engaged by Travelers, or engaged and consented by Travelers, to defend claims against an insured whose Other Policy placed a duty to defend on Travelers. The Court explained that this information was relevant to Travelers’ claim that Sunnen’s choice of arbitration counsel in the underlying action prejudiced Travelers. Sunnen Products Co. v. Travelers Cas. and Surety Co. of Am., Case No. 09-00889 (E.D. Mo. Feb. 25, 2010).

This post written by John Black.

An arbitration provision in an employment contract provided that each party to the arbitration could take one fact deposition, depose experts, request documents, and take additional depositions if authorized by the arbitrator for good cause. A California trial court held the limit on depositions to be unconscionable, refused to sever the discovery limit provision and denied a motion to compel arbitration. The California Court of Appeals reversed, finding that such limits on discovery were permissible in arbitration, in that it provided the arbitrator with discretion to permit further depositions without setting an extraordinarily high standard for obtaining further depositions. The Court also held that a contractual provision that the arbitrator, rather than a court, should interpret and implement the arbitration provision was permissible, especially in light of court decisions at both the state and federal levels holding that arbitrators have the authority to resolve disputes over the meaning of specific terms of an arbitration agreement. Dotson v. Amgen, Inc., Civil No. B212965 (Cal Ct. App. Feb. 3, 2010).

This post written by Rollie Goss.

Last year, a defendant insurer filed an unsuccessful motion for protective order concerning subpoenas to the defendant’s reinsurers; the court more recently declined to reconsider that ruling. The issues presented in the underlying litigation included the defendant’s alleged conduct and representations in selling coverage to the plaintiff insureds, and in denying that coverage. The defendant sought to protect documents relating to positions it took with its reinsurers in the ordinary course of business and arbitrations attempting to secure coverage from the reinsurers for the plaintiffs. In denying the motion, the court found the discovery was “undoubtedly” relevant to the plaintiff’s lawsuit since it could include impeachment evidence on the question of whether defendant denied the existence of coverage, or reveal motives suggesting bad faith. The court rejected assertions of the attorney-client and work product privileges because no specific prejudice would result without the protective order, and because an insurance company waives any privilege if it shares its counsel’s documents with a reinsurer when the parties’ interests are not aligned. The defendant’s interests were not aligned with the interests of the reinsurers because the defendant engaged in two contested arbitrations with the reinsurers. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. May 1, 2009).

On the defendant’s motion for reconsideration, the court found the defendant did not show an intervening change in the law or newly discovered evidence warranting reconsideration. Rather, the defendant relied on several older cases which the court found distinguishable. The court further clarified that it granted the plaintiff’s discovery requests in their entirety, without reservation. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. Feb. 4, 2010).

This post written by Brian Perryman.

A New York appellate court summarily affirmed the denial of the reinsurers’ motion to compel the cedant to disclose attorney-client communications. The court referred to its prior decision, American Re-Insurance Co. v. United States Fid. & Guar. Co., which held that the reinsurers could seek testimony and the production of documents concerning attorney-client communications on the presentation of the reinsurance claim, but only to the extent that the discovery related to disclosures made by one person at a deposition. In the prior decision, the reinsurers argued for a broad subject matter waiver, however, the cedant did not intend to advance an “advice of counsel” defense, and the court thus determined that waiver did not need to be expanded. United States Fid. & Guar. Co. v. Excess Cas. Reins. Assoc., Case No. 2009-09076 (N.Y. App. Div. Dec. 8, 2009).

This post written by Dan Crisp.

In connection with a train derailment in Graniteville, South Carolina, Norfolk Southern Corp., Norfolk Southern Railway Co., and General Security Insurance Co. (collectively, “movants”) sought an order to require the deposition in Chicago of the former counsel to ACE Bermuda Ltd. for use in a private arbitration in England. The movants claimed that 28 U.S.C. Section 1782 allowed the Illinois district court to order such a deposition, however, Section 1782 does not explicitly address private arbitrations. In denying the motion, the court interpreted the reference to “arbitral tribunals” in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), to include state-sponsored arbitrations but exclude purely private arbitrations and the court agreed with pre-Intel circuit court decisions that Section 1782’s legislative history did not support the inclusion of private arbitral tribunals within the scope of the statute. In re Norfolk S. Corp., Case No. 09-3092 (USDC N.D. Ill. June 15, 2009).

This post written by Dan Crisp.

The plaintiff, Dartmouth Hitchcock Medical Center, moved to compel the defendant, CHG Medical Staffing, to produce a reinsurance agreement between CHG and CNA. In support of its motion, Dartmouth represented that the court had ordered CHG to produce insurance policies during a hearing in a related case. CHG refused to produce the agreement on the ground that discovery has not yet begun, citing the automatic discovery moratorium imposed by Federal Rule of Civil Procedure 26(d). Dartmouth argued in its Motion to Compel Production of Documents that CHG is in violation of the “intent and spirit of this Court’s Order, if not the letter.” The court found in favor of CHG, noting that because the parties agreed that the court did not order production of the reinsurance agreement, CHG’s refusal to produce it did not violate an existing court order and that discovery would progress in accordance with the Federal Rules. Dartmouth Hitchcock Medical Center v. Cross Country Travcorps, Inc., Case No. 09-160 (USDC D.N.H. July 31, 2009).

This post written by Brian Perryman.