United States: Potential Secondary Effects Of Regulatory Examinations: Evidentiary Issues And Preclusion In Parallel Litigation

Last Updated: October 28 2016
Article by Stephen J. Jorden and Michael N. Wolgin

Increasingly aggressive and adversarial examinations by state regulators can expose insurers to troubling evidentiary issues in subsequent individual and class action litigation. Plaintiffs' counsel may seek to admit into evidence documents or communications exchanged with regulators, or the conclusions contained in an examination report. And where an examination leads to administrative hearings, plaintiffs' counsel may argue that findings made in the administrative hearing should be binding in subsequent civil litigation.

When the subject matter of a regulatory examination has the potential to overlap with pending or anticipated class action litigation, insurers should involve litigation counsel early in the process to help prepare responses, present the company's conduct in the best possible light, develop legal arguments, and make tactical decisions that can reduce the risk of adverse consequences in pending or subsequent civil litigation.

Evidence Generated During Regulatory Examinations

The most obvious example of a regulatory document that opposing counsel may seek to use as "evidence" in subsequent litigation is a final examination report. Although an examination report's factual findings and conclusions offered for the truth of the underlying assertions are classic hearsay, plaintiffs' counsel may seek to admit them pursuant to the "public records" hearsay exception set forth in Fed. R. Evid. 803(8). Rule 803(8) provides that a record of a public office may be admitted into evidence as an exception to the rule against hearsay if "(A) it sets out ... (iii) in a civil case ... factual findings from a legally authorized investigation; and (B) the opponent does not show that the source of information or other circumstances indicate a lack of trustworthiness." (Note that the public records exception will not typically apply to preliminary reports and correspondence setting forth allegations or preliminary findings and conclusions that have not been formally adopted by the agency.) Courts do not always construe "factual findings" within the meaning of Rule 803(8) narrowly, and some may admit conclusions reached by regulators that are based on factual findings if deemed trustworthy.1 Contrary to what some counsel may believe, the fact of a settlement with regulators will not itself prevent admission of a final examination report in subsequent litigation.

Documents generated or produced by the company during the examination process can also find their way into a private civil lawsuit. For example, if a plaintiff's counsel is successful in obtaining copies of the company's written communications or statements made to regulators in response to allegations, findings, or requests for information, the plaintiff's counsel may attempt to use such communications in litigation. While materials submitted to state insurance departments are typically subject to a confidentiality statute in that state's insurance code, several courts have held that these statutes do not create an evidentiary privilege for the insurer in private civil litigation.2 Plaintiffs may argue that statements made by the company in communications with regulators are "party admissions," which are not hearsay and are admissible under Fed. R. Evid. 801(d)(2). Plaintiffs also may attempt to obtain copies of productions of records made by the company to insurance departments. These records may be discoverable if plaintiffs can reasonably tailor their requests to their claims.3

In addition, plaintiffs often argue that regulatory findings or conclusions can be used for a variety of purported non-hearsay purposes, such as the effect on the recipient or intent. For example, a claimant might argue that a finding that a particular practice or document is misleading is relevant to show intent if the company continued the practice after the finding. Plaintiffs also often argue that regulatory findings and conclusions can be used for impeachment of the insurer's experts testifying about the practice at issue.

Potential Preclusive Effect of Administrative Litigation

Insurers that challenge the findings of an examination report in administrative litigation face another risk— that the hearing will result in decisions that may be binding under principles of collateral estoppel (issue preclusion) in subsequent civil litigation. Although individual state laws vary, a state agency proceeding is usually given the same preclusive effect as a court proceeding if the agency acts in a judicial capacity—affording the parties the minimum protections of due process, including a full and fair opportunity to be heard, the right to representation by counsel, cross-examination of witnesses, the existence of hearing transcripts, a neutral fact finder, and the availability of judicial review.

A more complicated issue concerns the extent to which a plaintiff who was not a party (or privy thereof) to the administrative hearing may preclude a defendant from re-litigating a specific issue that was already decided against the defendant in another proceeding. Issue preclusion laws vary among jurisdictions on the use of such "offensive non-mutual" collateral estoppel. Many states allow at least limited offensive use of non-mutual collateral estoppel; some states do not; and federal courts have "broad discretion" in applying federal common law to determine when such use should be permitted.4 Courts in jurisdictions that allow offensive use of non-mutual collateral estoppel typically are guided by principles of efficiency and fairness and are sensitive to the heightened potential for unfairness to the defendant.


  • Carriers should ensure that employees handling regulatory examinations update in-house litigation counsel (and if retained, outside counsel) on the scope of the examinations to identify the potential for overlap with pending or subsequent litigation.
  • Personnel handling responses to examinations covering areas that overlap with pending or foreseeable litigation should coordinate closely with litigation counsel in dealings with the examiners and with other parties related to the examination. Depending on the importance of the issues, it may be wise to start this coordination early during the state's data-gathering process. And in some circumstances, responses should be handled as if the requests were from a litigation adversary. For example, the failure to correct a regulator on the facts or point out legal arguments regarding why the company believes it has not violated a particular disclosure regulation could lead to adverse preliminary findings. Examiners may be less flexible about accepting information and arguments later in the process after they have reached preliminary conclusions.
  • If the company believes an insurance department is determined to make adverse findings, regardless of the facts, it should consider strategies to avoid the admissibility of those findings in related litigation. Official agency reports are not admissible under Federal Rule of Evidence 803(8)(C) if the opponent of the evidence shows they are untrustworthy. The Advisory Committee note accompanying the Rule lays out four, nonexclusive factors for determining trustworthiness: (1) the timeliness of the investigation; (2) the special skill and experience of the official; (3) whether a hearing was held and the level at which it was conducted; and (4) possible motivation problems. Bias of the examiner or department is one obvious basis for questioning a report's trustworthiness.
  • We have seen regulatory investigations and examinations of insurance companies follow closely on the heels of lobbying efforts by lawyers and companies interested in pursuing litigation. And we frequently observe regulators hiring as consultants individuals who make a living testifying against the insurance industry in private civil litigation. Techniques for obtaining evidence of bias include open records requests and discovery requests seeking communications between self-interested third parties and regulators (or higher level government officials) who may have influenced a department's process. While such techniques can be potentially detrimental to the relationship with a department, given the stakes and unfair prejudice that can accompany admission of inappropriate regulatory findings, they may be worth the fight.
  • Settlements alone will not impact the admissibility of a final report. However, the circumstances of the settlement, such as a written acknowledgement that a particular finding should be modified, could provide a basis for arguing that the report is untrustworthy or that it should be excluded under Federal Rule of Evidence 403, which allows the court to exclude relevant evidence if "its probative value is substantially outweighed by a danger of ... unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence." And settlement will eliminate the possibility of a final judgment in an administrative proceeding and the related risk of collateral estoppel.
  • If a department has made adverse findings that overlap areas of pending or anticipated litigation, the company should consider whether to challenge those findings in an administrative hearing. The considerations behind that decision are complex and varied, but one factor should be the potential for a decision with binding effect on the company. The basic requirements of collateral estoppel are often difficult to satisfy: the issue in question in the second proceeding must be identical to that litigated in the first proceeding; there must be a final judgment on the merits; the issue must have been actually decided and necessary to the final judgment; and there must have been a full and fair opportunity to litigate the issue in the first forum.
  • Differences in substantive laws, burdens of proof, and standards of review applicable in administrative proceedings can also undermine the identity of issues required for collateral estoppel. Particularly relevant to the application of offensive non-mutual collateral estoppel, the procedures of the administrative forum may not be sufficiently adjudicative in nature such that resulting decisions should be given binding effect. For example, administrative hearings in many states may be presided over by employees of the commissioner, making the impartiality of the decision maker inherently suspect.


A regulatory examination can have a significant impact on the discovery, evidence, and legal rulings in an overlapping litigation matter and create substantial risks for insurance carriers. An overlapping strategy can help carriers manage these risks.


1 See Beech Aircraft Corp. v. Rainey, 488 U.S. 153, 170 (1988) (holding that conclusions or opinions in an investigatory report can be admissible under Rule 803(8) if they are "based on a factual investigation and satisf[y] the Rule's trustworthiness requirement").

2 Compare AmTrust N. America v. Safebuilt Ins. Servs., No. MC-169 (CM) (JLC), 2016 WL 2858898 (S.D.N.Y. May 16, 2016) (holding that Montana insurance code provision did not create evidentiary privilege) with Rowe v. Bankers Life & Cas., No. 09 C491, 2011 WL 1897181 (C.D. Cal.) (holding that insurer could invoke California Insurance Code provision to withhold market examination report).

3 Marion v. State Farm Fire & Cas. Co., Civ. No. 1:06CV969, 2008 WL 7908019 (S.D. Miss. Feb. 13, 2008) (denying motion to compel insurer to produce "documents regarding meetings with the Department of Insurance, unless such meetings relate specifically to the [plaintiff's] claim.").

4 Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331 (1979) (affirming district court's decision in stockholder class action to prevent corporate and individual defendants from re-litigating adverse decision in declaratory judgment action brought by the SEC).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions