United States: Discovery Opinions Show Limits Of Privilege And Broad Standard Of Relevance

Last Updated: May 3 2017
Article by Jason R. Brost

Three recent opinions issued by courts highlight the scope and limitations of a party's right to discovery of reinsurance, reserve and allegedly privileged information in insurance coverage disputes.

The first case involved allegations that defendant Mt. Hawley Insurance Company ("Mt. Hawley"), an excess commercial liability insurer, denied plaintiff Contravest Inc.'s ("Contravest") insurance claim in bad faith. The court made three significant rulings on discovery. First, applying South Carolina law, the court compelled production of allegedly privileged communications in Mt. Hawley's claims file, because it asserted that it did not act in bad faith in analyzing coverage, thus putting the legal advice it received at issue in the court's view. Second, the court found that Mt. Hawley's communications with its reinsurer were relevant to the bad faith claim, and thus discoverable, as they might contain Mt. Hawley's reasons for denying Contravest's claim. The court also rejected as unsupported Mt. Hawley's argument that these communications were privileged. Third, the court found that information regarding Mt. Hawley's reserves was discoverable to the extent this "information reveals defendant's assessment of the validity of" Contravest's claims for coverage. Mr. Hawley argued that this information was protected by the work product doctrine, but the court found that Mt. Hawley failed to show that it was prepared in anticipation of litigation. Contravest Inc. et al. v. Mt. Hawley Insurance Company, No. 19:15-cv-00304-DCN (D.S.C. Mar. 31, 2017)

In the second case, plaintiff Baxter International, Inc. ("Baxter") sued defendant AXA Versicherung ("AXA"), an insurer, seeking indemnification for losses arising from a product liability MDL. The discovery dispute centered on Baxter's requests for production of communications between AXA and it co-insurers and reinsurers, including notices of the underlying litigation and communications in which AXA described the coverage available to Baxter under AXA's policy. AXA argued that the notices from AXA were irrelevant, but the court found that they might contain admissions by AXA regarding the scope of coverage under its policy, and it compelled their production. AXA also argued that all of its communications regarding the coverage available to Baxter were protected attorney work product, but the court found that AXA had failed to show that the litigation with Baxter was the primary motivating factor for creating these documents and that they were not created in ordinary course of business. However, in part due to Baxter's delay in requesting these documents, the court declined to compel their production, holding instead that Baxter could raise this issue in the future. Finally, and somewhat in contrast to the opinion in Contravest discussed above, the court found that AXA could redact the amount of its reserves and related information from which those reserves could be calculated from any of the documents it was compelled to produce, finding that this information was irrelevant. Baxter International, Inc. v. AXA Versicherung, Case No. 44-cv-9131 (N.D. Ill. March 30, 2017)

In the third case, the central issue was whether discovery would be permitted in order to show that the plaintiff Applied Underwriters, Inc. ("Applied") should be compelled to arbitrate the matter, despite the fact that the court had previously denied a motion to dismiss and compel arbitration on the basis that Applied was not a party to the reinsurance agreement containing the arbitration clause that defendant Top's Personnel, Inc. ("Top's") argued required the matter to be arbitrated. Applied had sued Top's for breach of a promissory note. The reinsurance agreement was between Top's Personnel and AUCRA, a subsidiary of Applied, and Applied argued that the reinsurance agreement was irrelevant to the litigation. However, Top's argued that AUCRA was acting as Applied's alter ego when the reinsurance agreement was executed, and the court found that Top's was entitled to discovery regarding the relationship between Allied and AUCRA and the connection between the promissory note and the reinsurance agreement in order to determine if the agreement's arbitration clause was implicated. The court refused Top's motion to compel the deposition of Allied's counsel, however, finding that Top's had failed to show that it had no other means of obtaining the information. Applied Underwriter's Inc. v. Top's Personnel, Inc., No. 8:15CV90 (D. Neb. March 31, 2017)

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