The Relevance of Reinsurance Information in a Coverage Dispute

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Among the discovery sought in many insurance coverage disputes is reinsurance information. This may include the reinsurance contracts that reinsure the underlying policies and communications between the cedent and reinsurer concerning the reinsurance contract or the underlying losses. Courts have been all over the place on this issue, with some only allowing production of the relevant reinsurance contracts and others allowing broad discovery into all facets of reinsurance material.

In a recent case, the court granted reinsurance discovery and found that the insurers failed to meet their burden to avoid production.

In U.S. Tobacco Cooperative, Inc. v. Certain Underwriters at Lloyd’s, No. 19-cv-430-BO (E.D.N.C. Apr. 9, 2021), the court addressed the policyholder’s second motion to compel discovery against the insurers. The court’s language in describing the discovery saga here is colorful and instructive (on what not to do). In fact, the court is entertaining attorney fees and sanctions.

But that’s not the point. The point here is that the court ordered broad production of reinsurance materials. The case involves a claim by a tobacco cooperative for damage to its product caused by flooding. The damage included mold and the insurers denied coverage, which spawned this coverage litigation.

In setting the stage, the court made the following statement concerning the insurers’ burden to avoid discovery:

The party resisting or objecting to discovery “bears the burden of showing why [the motion to compel] should not be granted.” Mainstreet Collection, Inc. v. Kirkland’s, Inc., 270 F.R.D. 238, 241 (E.D.N.C. 2010). To meet this burden, the non-moving party “must make a particularized showing of why discovery should be denied, and conclusory or generalized statements fail to satisfy this burden as a matter of law.” Id.

First, the court focused on automatic disclosures required under Rule 26(a)(1)(A). Under subparagraph (iv), each party is required to disclose:

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.

The court held that this rule required the insurers to identify and produce any relevant reinsurance agreements if the reinsurers may be liable for paying part of a judgment against the insurers.

Second, the court focused on the production of reinsurance materials requested by the policyholder. The court noted that the insurers claimed that the reinsurance materials were protected by the attorney-client or attorney work-product privileges. The court analyzed the parameters of the privileges and instructed the insurers to only withhold documents if they had a good faith belief that the communications related to the provision of legal services.

On the production of reinsurance materials, the court noted that the cases conflict on the issue. The court rejected the insurers’ argument that the policyholders had not shown the reinsurance information to be relevant because the burden is on the insurers to show a lack of relevance. The court held that the insurers did not meet this burden and that the reinsurance information was relevant. For example, the court found that the insurers presented no evidence showing that the reinsurance documents should be immune from discovery. No affidavits or other evidence were presented, just unsworn statements in the briefs.

Additionally, the court found that the insurers had waived the privileges because there had been both deposition testimony and some document production of reinsurance information. Accordingly, the court ordered production of the requested reinsurance documents.