Litigators know that in federal court initial disclosures are required. Under FRCP 26(a)(1)(A)(iv), parties must provide to the other side for inspection and copying “any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” The question is, does this section apply to reinsurance agreements?
In a recent case, a New York federal court determined that reinsurance agreements should be produced under this rule. Certain Underwriters at Lloyd’s v. Nat’l Railroad Passenger Corp., No. 14-CV-4717, 2016 U.S. Dist. LEXIS 64088 (E.D.N.Y. May 16, 2016). The ruling came out of a case between insurance carriers and its insured, Amtrak over coverage for environmental waste allegedly found on Amtrak’s property. Amtrak made a motion to compel discovery (of a wide variety of items), including demanding production of reinsurance agreements entered into by Amtrak’s insurers. the Insurers sought a protective order for their reinsurance agreements.
In denying the protective order and directing that the reinsurance agreements be produced, the court noted that many other courts have determined that the reference to “any insurance ageement” in the disclosure rule includes reinsurance agreements. The court construed the plain language of the rule (and the policy behind the rule) to support its conclusion. While the court acknowledged that reinsurance cannot be treated interchangeably with insurance in every context, it determined that it was appropriate to construe reinsurance as the functional equivalent of insurance for the purpose of initial disclosures.
The court noted that the rule refers to “any insurance agreement” that may be liable to satisfy all or part of a possible judgment or to indemnify or reimburse for payments made to satisfy a judgment. The court rejected the notion that privity mattered for disclosure and stated that what mattered was “whether the reinsurance agreement requires the reinsurer to ‘indemnify or reimburse for payments made to satisfy’ a possible judgment in the action.” The court found that reinsurance agreements clearly fell within the scope of that definition.
The court also noted that the disclosure rule was driven by policy concerns about realistic appraisals of settlement sand need for transparency. The court found that both these policy needs were promoted by the production of reinsurance agreements. The court stated that the availability of reinsurance might affect an insured’s willingness to settle, especially where the direct insurer’s solvency may be an issue.
Finally, the court recognized that sensitive business information might be contained in reinsurance agreements was was prepared to order production for attorneys’ eyes only. It also limited production to those reinsurance agreements relating to policies for which Amtrak was seeking monetary damages.