Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc., No. 6:13-CV- 00743 (BKS/ATB) (N.D.N.Y. Jan. 13, 2017).

A New York federal court affirmed a magistrate judge ruling denying a reinsurer’s motion to compel a cedent’s document containing attorney notes. The case concerned a dispute between the reinsurer and cedent regarding the limits of liability under two reinsurance contracts and whether the contracts had independent or aggregate limits. The cedent settled claims with its policyholder and brought suit when the reinsurer failed to pay all outstanding amounts. The reinsurer argued that the cedent falsely represented that the reinsured policies were subject to aggregate limits and that the cedent’s settlement was fraudulently orchestrated to create or maximize reinsurance coverage to which the cedent was not entitled.

The reinsurer alleged that the attorney notes at issue – which had been mistakenly produced in an unredacted format and then clawed back – were evidence of the cedent’s fraudulent attempts to engineer a settlement under which it received maximum reinsurance coverage. The attorney notes then, argued the reinsurer, fell under the crimefraud exception to privilege and should be produced. 

In denying the motion to compel, the magistrate judge reasoned it was not inherently improper for a cedent to consider its reinsurance contracts during settlement negotiations. Additionally, because a prior court had determined the cedent’s contracts were subject to aggregate limits, it was not fraudulent for the cedent to take that position here. Finally, the magistrate judge held that the settlement was not fraudulently obtained, as it was endorsed by judges in a prior litigation and found to be “fair, just and reasonable” and made at “arm’s length and in good faith.” Thus, the crime-fraud exception did not apply and the court would not compel disclosure of the privileged document. 

The district court judge affirmed the magistrate judge’s decision, holding there is no basis to find that the ruling is clearly erroneous or contrary to law.