ContraVest Inc. v. Mt. Hawley Ins. Co., No. 9:15-cv-00304-DCN, 2017 U.S. Dist. LEXIS 48638 (D.S.C. Mar. 31, 2017).
In an action brought against a cedent for declaratory judgment, bad faith, breach of contract, and unjust enrichment, a South Carolina federal court ruled that the cedent's communications with its reinsurer were discoverable. An owners association sued the insured, a property developer, for construction defects. The cedent refused to defend, indemnify or participate in the action. The insured eventually settled, and assigned its rights and claims against the cedent to the owners association. The owners association sued the cedent in state court, and the cedent removed the action to federal court.
The owners association moved to compel the cedent to produce, among other things, all of the cedent's communications with its reinsurers for all of the insured's claims made under the pertinent policies. The magistrate judge issued a report and recommendation compelling the cedent to produce the communications. The cedent objected, arguing that the communications were not relevant.
The district court overruled the cedent's objections, explaining that communications with the reinsurer were relevant and probative of the cedent's good faith to the extent the communications provided an explanation for granting or denying portions of the insured's claims or otherwise described the cedent's handling of the insured's claims. Because the owners association alleged that the cedent had changed its interpretation of the policies once it was evident that it would have to provide coverage, the cedent's prior handling of claims under the same policies was relevant and, thus, those discussions with the cedent's reinsurer were discoverable.