Documents Relating to Other Insureds, Reserves, Reinsurance Communications, Claims Handling and Underwriting Manuals Not Discoverable

In a favorable ruling for a Wiley Rein client, a Tennessee federal court has rejected an insured’s motion to compel documents and interrogatory responses relating to reserves, reinsurance communications, claims and underwriting manuals, and other claims against other insureds.  First Horizon Nat’l Corp. v. Houston Cas. Co., 2016 WL 5869580 (W.D. Tenn. Oct. 5, 2016).  Wiley Rein represents the primary carrier.

In 2012, the United States government initiated an investigation of an insured bank.  The bank eventually entered into a settlement with the government in 2015.  The bank’s E&O insurers denied coverage for the settlement on numerous grounds, including that the underlying claim was related to prior claims first made during earlier policy periods.  In addition, the insurers argued that the bank “deliberately hid the ball and failed to give notice of the” underlying claim until “well-after [it] learned the United States first asserted the Claim.”  During written discovery, the bank sought to compel the insurers to disclose (1) information and documents concerning the insurers’ treatment of other insurance claims, (2) claims-handling and underwriting manuals, (3) claim reserve information, and (4) reinsurance communications.

The court rejected all of these arguments.  First, the court held that discovery of information related to other claims made against other insureds was neither relevant nor proportional to the needs of the case.  With respect to both the insured’s coverage and “bad faith” claims, the court held that the insurers’ “conduct in other claims necessarily depends upon a number of variables and involves circumstances unique to each policyholder” and was not relevant.  The court also held that it would not permit this discovery even if the information were relevant because responding to the requests would require a “massive burden involving time, effort, expense, and disruption of business operations” on the part of the insurers, “lead to even further discovery disputes and create extended mini-trials,” and “indeed result in a fishing expedition.”

Second, the court rejected discovery of claims-handling and underwriting manuals from three excess carriers.  The court held that interpretation of the excess policies “depends on the interpretation of the language of the . . . primary policy.”  Accordingly, the court held that the claims manuals were “not relevant to interpretation of the meaning of these terms if the court finds an ambiguity in the language of the . . . primary policy.”  Similarly, the court held that it was “undisputed that notice to the underwriting departments of” the excess carriers was insufficient as a matter of law to provide notice of a claim, and that discovery of these documents was irrelevant as well.

Third, the court rejected the insured’s argument that discovery of reinsurance communications was permissible.  Although the court compelled the carriers to disclose reinsurance contracts pursuant to Rule 26(a)(1), the court held that communications with reinsurers were not discoverable in this instance because the defendants submitted affidavits that asserted that the reinsurance communications did not address the substantive issues in the case.

Fourth, the court denied the insured’s request to compel reserve information.  The court found that reserve information reflected a “business judgment,” not a “legal determination of the validity of the Plaintiffs’ claim against them,” was irrelevant, and was protected by the attorney-client privilege and work product doctrine.


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