Reinsurance and Insurance Arbitrator and Umpire Ronald S. Gass
ARIAS-U.S. Certified Arbitrator and Umpire
AAA Roster of Neutrals
Reinsurance and Insurance Dispute Resolution Services Consultant

Reinsurance Agreement Discoverable by Policyholder but Not Cedent Reinsurer Underwriting and Claims Communications

On relevancy grounds, policyholders are rarely successful in obtaining reinsurance underwriting and claims documents directly from their insurer's reinsurers; however, there are exceptions. For example, the U.S. District Court for the Eastern District of Pennsylvania recently held that the scope of Federal Rule of Civil Procedure 26(a), regarding the production of “any insurance agreement” under which any person “carrying on an insurance business” may be liable to satisfy part or all of a judgment or to indemnify or reimburse for payments made to satisfy a judgment, was broad enough to require a reinsurer's production of the relevant reinsurance agreement but not prior drafts or related cedent-reinsurer underwriting and claims communications.

In an excess general liability insurance policy coverage dispute over the indemnification of an Arkansas jury's $4 million punitive damages award, a commercial policyholder subpoenaed its insurer's reinsurer in a declaratory judgment action. The insurer had refused to pay the punitive damages award on the basis that coverage was precluded by the public policy of Pennsylvania. The policyholder sought copies of the reinsurance agreement, including all prior drafts, and all other cedent-reinsurer underwriting and claims communications that might be relevant to its punitive damages claim. In a motion to quash the subpoena, the insurer objected on relevancy grounds.

Because the policyholder brought a breach of contract counterclaim against its insurer seeking indemnification for all punitive and compensatory damages assessed against it, Rule 26(a), according to the federal district court, mandated that the reinsurer disclose the applicable reinsurance agreement, but not any prior drafts. (Why the policyholder did not obtain this document directly from its insurer was not addressed.)

Acknowledging that the law concerning the production of other cedent-reinsurer underwriting and claims communications was “less clear,” the court focused on their relevancy to the policyholder's assertion that the parties were required to interpret the punitive damages endorsement contained in the policy because the insurer had consulted with its reinsurer while evaluating its coverage position prior to denying coverage. Because there was no allegation here that the excess insurance policy was ambiguous, the court concluded that the subpoenaed reinsurance materials were irrelevant and, thus, not discoverable given the general principle that “reinsurance materials are only potentially relevant when the issue of ambiguity has been raised.”

Medmarc Casualty Insurance Co. v. Arrow International, Inc., Civ. Action No. 01-CV-2394, 2002 U.S. Dist. LEXIS 15082 (E.D. Pa. July 29, 2002).

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