Reinsurance Focus

In our January 7 post this year, we last told you about the discovery battles in AIU Insurance Company v. TIG Insurance Company, 07-7052 (USDC S.D.N.Y. Nov. 25, 2008), which we described as a “saga.” The saga continues. This time, the court reconsidered its August 28, 2008 order directing the production by TIG of information pertaining to its late notice investigation and records audit (which we discussed in a October 2, 2008 post). TIG moved for reconsideration of 25 of the documents ordered produced. The court found it had overlooked the factual bases for attorney-client privilege. Accordingly, the court entered an Order excusing TIG from producing some documents in their entirety, and permitting it to redact others.

This post written by Brian Perryman.

A New York State Court allowed the issuance of judicial subpoenas to non-parties at the request of Petitioner corporations in a pre-arbitration discovery action. The Petitioners and Respondents had agreed to arbitrate under FINRA rules, but the arbitration had not yet commenced, as Petitioners sought discovery to determine if other parties should be joined in the arbitration.

The Court noted that FINRA provides a comprehensive discovery scheme, and allows for the issuance of arbitral subpoenas, but is ambiguous as to pre-arbitral discovery. The Court also noted a general judicial reluctance to order discovery where the parties have agreed to arbitrate, but ruled that it was nonetheless appropriate for the limited purpose of determining whether any other parties exist that should be brought into the arbitration. VP Trader Pro, LLC v. Joseph Azevedo Pires, No 102334-09 (N.Y. Sup. Ct. April 21, 2009).

This post written by John Pitblado.

A court granted a petition for pre-arbitration issuance of judicial subpoenas to enable the petitioners to learn the names of potential parties against whom they may have a claim in their contemplated arbitration. Although the contemplated arbitration was to be governed by the Financial Industry Regulatory Authority’s Code of Arbitration Procedure, those rules were silent as to pre-arbitration discovery. However, a New York civil procedure statute specifically permitted pre-action discovery “to aid in arbitration.” That statute had been invoked where application was made to discover the identity of potential parties against whom an action may exist, so the petition was held proper. Petition of VTrader Pro LLC, Index No. 102334/09 (N.Y. Sup. Ct. Apr. 21, 2009).

This post written by Brian Perryman.

In an unpublished opinion, the Third Circuit Court of Appeals declined to exercise jurisdiction over an appeal of an order allowing discovery in connection with a motion to vacate an arbitration award. The Federal Arbitration Act provides for appeals from orders “modifying, correcting, or vacating an [arbitration] award.” The trial court’s decision to permit discovery into whether the award should be vacated might be a prelude to a final order vacating or modifying the award, but it is not a final order for purposes of the Act. Guyden v. Prudential Life Ins. Co. of Am., No. 08-3108 (3d Cir. June 5, 2009).

This post written by Brian Perryman.

The Flintkote Company (“Flintkote”), an insolvent asbestos manufacturer, brought this action against its insurers for failure to defend or indemnify for claims allegedly covered under a policy in force between 1958 and 1961 and requested discovery of its insurer’s reserves and reinsurance information. In allowing discovery of reserves information, the district court found this information relevant to the plaintiff’s claims of bad faith in that the information could be relevant to show the difference between what the insurers expected to pay for claims and communication with the plaintiff regarding the scope of loss. The court then denied plaintiff’s request to discover reinsurance documents, determining that the reinsurance agreements were not directly at issue or relevant to the litigation. The Flintkote Co. v. Gen. Accident Assurance Co., Case No. 04-01827 (USDC N.D. Cal. May 26, 2009).

This post written by Dan Crisp.

A group of reinsurers recently lost both their application for a partial stay of litigation pending arbitration and application to appoint an umpire pursuant to the Federal Arbitration Act. The underlying dispute between the parties concerned a disagreement regarding whether the parties’ commutation agreement covered certain reinsurance contracts purchased from various non-party insurance companies. The plaintiff (CNA) filed an action for a declaratory judgment, alleging that the commutation agreement did not apply to the non-party reinsurance contracts. The reinsurers (collectively, SCOR) argued that the commutation settled and terminated those reinsurance contracts, and that the dispute over one of the reinsurance contracts was already the subject of pending arbitration between the parties. The court declined to order a stay in the case since CNA’s claim – a request for a declaration of rights under the commutation agreement – did not fall within any enforceable agreement to arbitrate. The commutation itself did not include an agreement to arbitrate. The court also declined to appoint an umpire since both the existence of an enforceable arbitration agreement between SCOR and CNA as well as the commutation of one of the reinsurance contracts was disputed. The court observed that appointing an umpire before determining whether the parties are required to arbitrate would be premature. Continental Casualty Co. v. Commercial Risk Re-Ins. Co., Case No. 07-6912 (USDC N.D. Ill. Apr. 16, 2009).

Prior to this ruling, the court had also denied the defendant's Motion to Stay Discovery pending its ruling on the afore-mentioned matters.

This post written by Brian Perryman.

Plaintiff Clarendon National Insurance Company (“Clarendon”) sued Atlantic Risk Management, Inc. (“Atlantic”), its third party claims administrator (“TPA”), based in part on its contention that it consistently relied on Atlantic’s coverage recommendations to its detriment. The trial court denied Atlantic’s motions to compel production of Clarendon’s claim files and copies of its reinsurance policies. The Appellate Division reversed, ordering Clarendon to produce all of its claims files for which Atlantic served as TPA, as well as copies of its reinsurance policies. The Court held that the claims files were relevant to plaintiff’s claims handling practices at issue, and that the reinsurance policies are required to be disclosed under New York’s procedural rule requiring production of all insurance policies which potentially cover the subject liability. Clarendon Nat’l Ins. Co. v. Atlantic Risk Mgmt. Inc., Nos. 5303N, 5303NA, 5303NB and 5303NC (N.Y. App. Div. Feb. 19, 2009).

This post written by John Pitblado.

Plaintiffs Trenwick American Reinsurance Corporation (“Trenwick Re”) and Unum Life Insurance Company of America (“Unum”) brought an action against reinsurer IRC Re, Limited (“IRC Re”) and others arising from a claims dispute under an alleged reinsurance contract under which IRC Re purportedly agreed to reinsure a portion of a risk also partially reinsured by Trenwick Re. Specifically, Trenwick Re alleges that IRC Re agreed to continue to reinsure a 19% portion of a managed workers compensation insurance program (the “Compcare Program”) which IRC Re had previously reinsured, when Trenwick Re and various other parties entered into a quota share reinsurance treaty covering the Compcare Program.

The plaintiffs filed a lengthy Memorandum arguing that the defendants failed to satisfy their discovery obligations by (1) failing to provide responsive documents to certain requests, despite having claimed to have provided them in a 50,000 page purported “document dump;” (2) failing to provide documents under the defendants’ custody or control in the possession of defendant IRC Re’s “management and administrative services provider,” Beecher Carlson, a Bermuda company; (3) failing to produce documents alluded to by defendants’ designated 30(b)(6) deposition witness; and (4) failing to provide complete answers to interrogatories and failing to specify objections beyond “boilerplate” assertions. Defendants filed a Memorandum in opposition. The Court, in a three-sentence electronic order, granted portions of plaintiff’s motion pertaining to points (1) and (4) above, and noted that defendants would not be permitted to rely on any documents not produced in response to plaintiff’s requests. Trenwick American Reinsurance Corp. v. IRC Inc., Case No. 07 -12160 (USDC D. Mass. Dec. 17, 2008).

This post written by John Pitblado.

The bell has rung on the latest round of discovery litigation brought between AIU Insurance Company (“AIU”) and TIG Insurance Company (“TIG”) in litigation in federal District Court. As we wrote in our previous post of October 2, 2008, AIU brought the litigation to recover reinsurance payments allegedly owed to it from TIG on the basis of certain excess liabilities arising from underlying asbestos litigation exposure. In our October post, we noted that the Court ordered TIG to produce documents relating to its anticipated late notice defense from its claim file, despite its objections based on claims of attorney-client privilege and protection under the work product doctrine.

In the latest round of discovery litigation, TIG moved to compel AIU to produce certain documents despite AIU’s claims of privilege. In another split decision, the court ordered some, but not all of the relief sought by the moving party. Despite TIG’s arguments that certain privileged documents were nonetheless discoverable because AIU’s advice of counsel defense put them at issue, the Court held that the advice of coverage counsel is not necessarily at issue in evaluating the reasonableness of an underlying settlement. The Court did order the production of documents pertaining to similar, but unrelated claims, noting that they could lead to the discovery of admissible evidence pertaining to the manner in which the insurer interprets its own obligations under the notice provision of its contracts. The Court also ordered that AIU search the electronic files of certain persons named by TIG, finding that their electronic materials were discoverable. AIU Insurance Company v. TIG Insurance Company, 07-CV-7052 (SHS) (HBP) (USDC SDNY Nov. 25, 2008).

This post written by John Pitblado.

Life Settlements Corp. d/b/a Peachtree Life Settlements (“Peachtree”) entered into a contingent cost insurance contract with Syndicate 102 at Lloyd’s of London (“Syndicate 102”) to insure against the risk that living insureds under life policies which Peachtree purchased might live past his or her projected life expectancy. Some of the purchased life policies were placed by Peachtree with Life Receivables Trust (the “Trust”), an entity created by Peachtree for the express purpose of holding the policies. Syndicate 102 declined a claim by Peachtree after an insured outlived his life expectancy, asserting that the Trust made fraudulent misrepresentations regarding the date on which the underlying life policy was purchased, and also regarding the insured’s life expectancy. Syndicate 102 and the Trust arbitrated the dispute under the parties’ agreement, which commanded arbitration under American Arbitration Association rules.

After Syndicate 102 unsuccessfully attempted to join Peachtree as a party to the arbitration (Peachtree was also a party to the contract containing the arbitration agreement), it successfully sought the arbitrators’ issuance of subpoenas commanding Peachtree to produce certain documents that the Trust was unable to obtain from Peachtree, due to Peachtree’s expressed position that it was not a party to the arbitration, and the arbitrators thus had no jurisdiction to issue orders binding on Peachtree. After Peachtree refused to comply with the subpoenas, Syndicate 102 filed an action in the federal district court seeking to compel compliance. The court ordered Peachtree to comply. Peachtree appealed, and the Second Circuit held – noting a split among the circuits – that the plain language of §7 of the Federal Arbitration Act does not authorize pre-hearing discovery from non-parties, and that a non-party may only be compelled to produce documents or testimony in conjunction with an appearance before the arbitral panel. The Court thus reversed the district court’s ruling ordering Peachtree to comply with the subpoenas. Life Settlements Corporation d/b/a Peachtree Life Settlements v. Syndicate 102 at Lloyd’s of London, No. 07-1197-cv (2d. Cir. Nov. 25, 2008).

This post written by John Pitblado.