Why it matters
Insurers regularly assert blanket protections over discovery of communications with their reinsurers. In an important development for policyholders, a federal court in Iowa recently held that such communications either were not protected or that the protections had been waived. Specifically, an insurer asserted that case updates, strategy reports, and similar documents it provided to its reinsurers in connection with underlying litigation were protected, in whole or in part, by the attorney work product doctrine and the attorney-client privilege. The court disagreed. As to the attorney work product doctrine, the court held that the communications were not protected because they were created in the ordinary course of business, not in anticipation of litigation. As to the attorney-client privilege, the court held that the insurer waived privilege when it disclosed the communications to its reinsurers. Moreover, there was no common interest between the insurer and its reinsurers that might otherwise preclude waiver, the court held, because a business relationship between those parties, without more, does not trigger the common interest doctrine. For the reasons cited by this court, policyholders litigating against their insurers should consider seeking discovery of communications with reinsurers. They also should consider applicable state law to determine the likelihood of successfully challenging their insurers’ inevitable privilege assertions.
When Vantus Bank in Sioux City, Iowa failed, the Federal Deposit Insurance Corporation (FDIC) took over as receiver and filed a lawsuit against the bank’s former directors and officers alleging negligence, gross negligence, and breach of fiduciary duty. Progressive Casualty Insurance, the bank’s directors and officers liability insurer, denied coverage for losses arising from the failure and then filed a declaratory judgment action seeking to avoid its coverage obligations.
During the course of discovery, the FDIC sought certain communications between Progressive and its reinsurers, including regular case updates provided pursuant to reinsurance agreements and additional communications requested by the reinsurers relating to case history and posture, coverage and liability assessments, amounts paid and reserved, and plans for future case handling. The magistrate judge assigned to the case ordered Progressive to produce the communications, but allowed it to redact certain information based on the attorney work product doctrine and attorney-client privilege. The FDIC objected, arguing that the communications either never were protected, or that Progressive had waived the protections by having shared them with its reinsurers (and its reinsurance broker, as conduit to its reinsurers).
The court agreed with the FDIC. With respect to work product, the court rejected Progressive’s contention that its communications with its reinsurers were prepared in anticipation of litigation. “Where the business of Progressive is insurance against risks, and the business of reinsurers is reinsurance of risk policies . . . the purported work-product documents, involving communications between Progressive and its reinsurers, were ‘prepared in the ordinary course of business,’ not ‘in anticipation of litigation,’” the court opined. “[T]he documents at issue were in the nature of business planning documents; neither Progressive nor the reinsurers were involved in giving legal advice or in mapping litigation strategy in any individual case.”
The court further declined to apply piecemeal work product protection, noting Progressive’s concession that the portions of the communications arguably containing attorney mental impressions would have been prepared in any event pursuant to the reinsurance agreements and/or in response to specific requests from the reinsurers.
As to attorney-client privilege, the court rejected Progressive’s argument that it shared a “common interest” with its reinsurers that precluded waiver because the requisite identity of legal interests between Progressive and its reinsurers did not exist. Progressive “and its reinsurers do not have a common legal interest merely because the reinsurers have an obligation to pay Progressive’s losses,” the court noted. “[R]ather the relationship between Progressive and its reinsurers and reinsurance broker is commercial and financial.”
The court further rejected Progressive’s argument that an authorization in the reinsurance agreement for its reinsurers to participate in the underlying litigation with Progressive established “a cooperative and common enterprise towards an identical legal strategy.” Indeed, the court opined, “Progressive failed to establish that any exchange of the documents in question was in furtherance of a common legal interest, or was a matter of legal necessity, rather than in furtherance of Progressive’s commercial or financial relationship with its reinsurers, even if some of the documents were purportedly prepared by [the reinsurer’s] claims attorneys.”
Overruling all of Progressive’s objections, the court ordered Progressive to provide unredacted versions of its communications with its reinsurers to the FDIC.
To read the opinion in Progressive Casualty Insurance Co. v. Federal Deposit Insurance Corporation, click here.