In recent years, requests by reinsurers for documents from their reinsureds have often led to drawn-out negotiations as to the basis on which such documents would be released.
In particular, reinsurers have increasingly been required to execute confidentiality agreements as a condition of the release of documents. Such agreements are sometimes referred to as “non-disclosure agreements” (NDAs).
From the perspective of reinsurers, this process may well seem frustrating. From the reinsured’s perspective, however, a confidentiality agreement may be a legal necessity as opposed to merely a commercial strategy.
This article examines why, and in what circumstances, NDAs may be required under English law and identifies whether there might be a quicker and more cost-effective approach to the preservation of confidentiality in the context of reinsurance claims.
Is there an obligation to provide documents?
Reinsurers require documents from their reinsureds at two key stages in their relationship: first, to enable the underwriter to rate the risk that is to be reinsured, and second to enable the reinsurer to assess any claims subsequently arising under the reinsurance contract.
A reinsurance contract is a contract of utmost good faith, and, in general, a reinsured is obliged to disclose all information material to the relevant risk, prior to the reinsurer becoming bound to that risk.
The common law obligation to provide information to the reinsurer in the claims context is generally more limited. In the leading case on this specific issue, Charman v GRE1, Webster J suggested that, in the absence of an express provision, a narrow implied term entitling a reinsurer to limited, key information may nonetheless be construed into a reinsurance contract. He added that evidence of market custom and practice would normally be required to determine the existence and extent of any rights flowing from such an implied term, but even without such evidence:
“…I will assume, and am to be taken as having decided if necessary, that in the absence of a claims cooperation clause or any clause to the same sort of effect (which is not present in this case) a reinsurer has a right to require the reassured to provide him with information and documents showing, but not necessarily in detail, the claim that was made, how the claim was dealt with (for instance whether by the appointment of loss adjusters, or in-house or by both means), and (if by the appointment of loss adjusters) who they were, sight of all their reports, and the answers to any relevant questions the answers to which might reasonably enable the reinsurer to contend that the loss adjusters had not adjusted or that the reassured had not settled the claim in a business-like way, but not extending to answers to questions necessary to enable the reinsurer to satisfy himself that the claim has been adjusted and settled in a business-like way; for if he was to be entitled to that information he would, in effect, be entitled to require his reassured to prove both liability and the precise reasons why the claim had been adjusted and settled in the way in which it had been (emphasis added)”.
Similarly, in Phoenix v Halvanon2 Hobhouse J found that, based on the normal test of “business efficacy”, there must, as a matter of principle, be an implied duty on a cedant to “obtain, file or otherwise keep in a proper manner all accounting, claims and other documents and records and make them reasonably available to the reinsurer”. Nonetheless, questions such as the proper scope of “other documents and records” and of the duty to make the various categories of documents and records “reasonably available” are to be determined on a caseby- case basis.
The existence of even this limited implied duty was questioned, however, in SAIL v Farex3 by Lord Justice Hoffmann (as he then was). He considered that rights of inspection were a matter only for express contractual stipulation; reinsurers were free to protect themselves by negotiating broader rights of access to information if they considered this to be necessary.
The guidance from the Courts is therefore not altogether clear. The salutary message, however, is that in the absence of a separate agreement (such as an NDA) it is the express wording of the reinsurance contract that will determine what, if any, documents are available to a reinsurer. The combination of “Inspection of Records” and “Claims Control” / “Claims Co-operation” clauses should delineate the exact parameters of what information and documentation the reinsured is obliged to provide in the claims context.
How do confidentiality obligations impact on disclosure requirements?
There is then the separate question of whether disclosure of documents by a reinsured triggers a duty of confidentiality on the part of the reinsurer.
As a matter of English law, information may be protected as confidential where a party has a “reasonable expectation” of confidentiality or privacy, and another party has agreed to keep the information confidential or at least has notice of its confidentiality. However, as one key commentator, Paul Stanley, has recently emphasised4:
“ Where there is an actual contract, the courts’ usual preference seems to be to treat the obligations under the contract as determinative. It is not thought necessary or desirable to rely on some equitable supplement to the contract, but rather the obligations of confidentiality are treated as (and by reference to) the express or implied terms of the contract. The contract governs, and contractual analysis dominates (emphasis added)”.
It is therefore in the interests of both parties to establish as far as possible beforehand the scope of any confidentiality obligations relating to documents that a reinsured is proposing to share with its reinsurer.
There are several legal as well as practical reasons why a reinsured might wish in advance to maintain confidentiality in respect of such documents.
Obligations to third parties?
A reinsured may be obliged to produce documents that are subject to legal restrictions that curtail their voluntary disclosure, i.e., the confidentiality that the reinsured is seeking to preserve may not necessarily be within the reinsured’s own control. Amongst the key restrictions on the use of documents that are in a reinsured’s possession, but not necessarily in its control, are those created by: data protection obligations, the assertion of legal professional privilege and orders made by courts and other tribunals.
- Data protection obligations will vary from jurisdiction to jurisdiction, but may arise, for instance, in relation to information held regarding individual insureds.
- A reinsured might hold documents that attract privilege in relation to its own rights, e.g., legal advice obtained by it in relation to an inwards claim. Equally, the privilege might belong to a third party, e.g., particularly in the context of professional indemnity insurance. The recent case of Quinn Direct Insurance Ltd v The Law Society of England & Wales5 stressed that an insured solicitor was not entitled, or bound, to disclose to his insurer privileged documents or information held on behalf of his clients, without the clients’ consent.
- A reinsured may also hold documents disclosed to it in the context of court proceedings. The procedural rules of the jurisdiction in which the proceedings are taking place, or specific actions of the relevant court — e.g., in handing down a “protective” order restricting the subsequent disclosure or use of documents obtained during the discovery process — can affect the ability of the reinsured to pass on to its reinsurer documents formally disclosed in the proceedings in that jurisdiction.
The reinsured must be clear as to the scope of the obligations that it owes to third parties. Equally, depending upon the scope of such obligations it is in the interest of the reinsurer to seek to ensure as early as possible that any necessary consent from those third parties is obtained by the reinsured as early as possible, to prevent unnecessary delay.
One practical approach might be for the reinsurer to require the reinsured, at the time they are entering into the contract of reinsurance, to seek consents from readily identifiable third parties, or details of other confidentiality arrangements. This would, of course, involve a detailed discussion regarding what documents were required and from whom they might best be obtained. It is unlikely to be welcome or practical.
There may also be documents regarding which the reinsured does have unfettered control, but which it may legitimately wish to protect following production to the reinsurer, for a number of reasons.
The reinsured might, for instance, wish to protect commercially-sensitive information about its own business that could otherwise be gleaned from placing information. Similarly, in the claims context, commercial information about underlying claims might be of interest to the reinsurer, to any retrocessionaires, to any relevant auditors and regulatory authorities, or, perhaps more significantly, to interested journalists or third parties involved in disputes with the reinsured or its insured.
The reinsured may of course adopt distinct approaches to each potential recipient. It may have no objection, in principle, if a document is to be shared by the reinsurer with, say, an auditor or retrocessionaire, but it might have a clear objection to any onward dissemination of sensitive commercial information to the world at large.
Again, the precise scope of the reinsurer’s ongoing obligations needs to be carefully circumscribed in the NDA, but the reinsured should identify as early as possible the information that it considers to be confidential.
What if, for instance, a subpoena is served by a third party on a reinsurer, requiring the production of documents that are otherwise subject to confidentiality provisions in an NDA? How can the reinsurer reconcile the duty to respond appropriately to the subpoena with its duty of confidentiality under the NDA?
The duty of confidentiality under English law is qualified, so that it must in principle give way to any statutory rule compelling disclosure.6 Therefore, it would not be possible for the reinsurer to invoke its contractual obligations under NDAs to prevent the disclosure of a document in its possession that it is otherwise required to disclose pursuant to a subpoena (or under Part 31 of the English Civil Procedure Rules, which governs the disclosure of documents in proceedings to which the reinsurer may be a party).
This “qualification” only applies to English statutory rules, however. As a consequence, a party subject to disclosure restrictions under an NDA might be obliged to disclose a document in response to the terms of an English Court order but not necessarily that of a U.S. Court.
It is therefore particularly important for both parties to consider in advance to what extent any NDA might permit a party to produce documents further to a subpoena and/or other statutory obligations.
It is clear from the above that a “one size fits all” approach may not meet all of the challenges that a reinsured’s concern to preserve confidentiality poses.
It should nonetheless be possible, either at the pre-contractual stage (for underwriting information) or contractual stage (for claims information), for a reinsured and reinsurer to agree on a wording that clearly identifies the parameters for sharing and disseminating confidential material. As far as possible, that process should include agreement on what information might belong to third parties and how that might be addressed in advance, as well as agreement on how extra-contractual obligations should be dealt with.
Reinsureds and reinsurers may, in the future, save significant time and costs if confidentiality issues are given due consideration well before problems emerge.