In a recent decision of the United States District Court for the Southern District of New York, AIU Ins. Co. v. TIG Ins. Co., 07 Civ. 7052 (SHS) (HBP) (S.D.N.Y. Nov. 25, 2008), the court ordered AIU Insurance Company (AIU”) to produce documents relevant to whether prompt notice of certain claims arising under the reinsurance contracts at issue was provided to TIG Insurance Company (“TIG”).

AIU issued four umbrella policies to Foster Wheeler Corporation (“Foster Wheeler”), a manufacturer of boilers (and the subject of asbestos-related personal injury claims since the late 1970s). The predecessor of TIG entered into reinsurance contracts with AIU, under which TIG reinsured the AIU umbrella policies issued to Foster Wheeler. In 2001, Foster Wheeler’s insurers, including AIU, commenced an action in New York State Supreme Court against Foster Wheeler seeking declaratory relief regarding their rights and obligations under the primary and umbrella policies. In 2006, AIU settled with Foster Wheeler and sought reimbursement of the settlement payment from TIG pursuant to the reinsurance contracts. In response to AIU’s claim, TIG requested that AIU provide information about when it first received notice of Foster Wheeler’s claims under the umbrella policies, and eventually audited AIU.

In connection with the audit, AIU and TIG executed a confidentiality agreement, and AIU provided TIG with documents prepared by AIU’s coverage counsel. After the audit, AIU refused TIG’s request for copies of these documents. Ultimately, AIU filed suit against TIG, alleging breach of the reinsurance contracts for TIG’s failure to pay the Foster Wheeler settlement. In its answer to the complaint, TIG asserted a “prompt-notice” defense claiming that AIU breached the reinsurance contracts by not providing TIG with prompt notice of potential exposure to the Foster Wheeler asbestos claims. The subject discovery dispute arose from TIG’s attempt to obtain documents relevant to the prompt notice defense.

TIG sought documents reflecting historical information concerning AIU’s knowledge of its potential liability to Foster Wheeler; documents relating to AIU’s notice to other reinsurers concerning AIU’s settlement with Foster Wheeler; and documents relating to TIG’s audit of AIU. AIU objected on the grounds of attorney-client and work product privileges and objected to producing documents related to other claims and its other reinsurers. The court ruled, with regard to documents provided to TIG during the audit, that AIU did not waive any privilege because TIG had signed the confidentiality agreement, which provided that the disclosure of any documents to TIG during the audit would not constitute a waiver of any applicable privilege. The court also ruled that discovery sought as to AIU’s notice to other reinsurers was not relevant. However, the court ordered AIU to produce documents relating to other Foster Wheeler actions to the extent such documents related to notice and performance on other occasions under the reinsurance contracts at issue.

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