Carriers routinely resist efforts to compel production of the underwriting and claims files on other policyholders on the basis of relevance. Early last month in H.J. Heinz Co. v. Starr Surplus Lines Ins. Co., 2015 WL 5769990 and 5781295, 2015 U.S. Dist. LEXIS 138080, (W.D.Pa., Oct. 1, 2015), an insurer lost that fight when a federal court in Pennsylvania required it to produce the files. The case is noteworthy, but arguably limited in terms of its application to other disputes. A Phase One trial was directed solely to the insurer’s efforts to rescind the policy because of material misrepresentations in the application, and discovery addressing whether the insured was being treated the same way as other similarly-situated policyholders was uniquely important given that fact. As the court recognized, it was “the main mechanism” for plaintiff to defend itself.
The Westlaw cites are duplicates, and one will be taken down shortly, but we don’t know which as we publish this post.
The insured manufactured and sold a dry, high-protein baby cereal in China. On August 18, 2014, the Food & Drug Administration of Zhejian Providence seized hundreds of boxes of the product after tests revealed high levels of lead. The cause was ultimately determined to be a contaminated production run of defatted soy powder from Qingdao Longhi Food Company, one of the policyholder’s ingredient suppliers. The insured recalled the cereal and made claim under its product contamination policy for an “on-going” loss that it estimated to be in excess of $30 million.
The carrier refused to pay, alleging fraud and concealment in the application. According to the insurer, the policyholder had failed to disclose a number of previous product recalls in China, Canada, and New Zealand, and it had understated the amount of prior contamination losses. In the lawsuit that followed, the carrier sought rescission for material misrepresentations and omissions in the application.m
The court determined that it would conduct a “multi-pronged trial,” with Phase One devoted solely to the insurer’s request for a rescission of the insurance policy. The policyholder then filed a motion to compel. The insured sought:
All underwriting files relating to Product Contamination insurance policies that You sold to policyholders with annual sales exceeding $8 billion, other than Heinz, in 2014.
The carrier responded with objections, stating that this request was unduly burdensome, was not focused on what it called “similar” policies, was potentially violative of the privacy of other insureds, and would “complicate” the Phase One trial.
On October 1st, Judge Arthur Schwab of the Western District of Pennsylvania disagreed, and he granted the motion. The lynchpin of his decision was the fact that the court felt that the request was “appropriate in terms of the narrow issue of rescission/materiality.” In the words of the decision:
the Court finds that Heinz is entitled discovery that may reveal information that is relevant to combat Starr’s position on rescission; the main mechanism to do so is through examining other comparable policies issued by Starr and associated risks.
The court held that the request was “appropriately limited in scope, being that the request is confined to a specific set of potential policies (product contamination policies sold by Starr), involving a comparable amount (annual sales in excess of $8 billion) and limited to a temporal period (2014).” Complaints of undue expense also fell on deaf ears because the request was considered “proportional to the amount in dispute” in the litigation. Finally, the judge rejected violation of privacy claims because the insured’s motion had expressly stated that the names of other policyholders could be redacted.
With respect to each of the files at issue, the court then ordered production of: (1) the application; (2) the “loss history page”; (3) the premium charged; (4) the “ ‘subjectives’ required of the insured by Starr during the underwriting;” and (5) “any analysis Starr conducted in deciding to issue the policy or set the premium.” The insurer was permitted to designate all productions as “Confidential,” and it was also permitted to redact both identifying information related to the third-party insureds and “business information in the policies.”