Ronald S. Gass
Reinsurance and Insurance Arbitrator and Umpire
Reinsurance and Insurance Dispute Resolution Services Consultant

Court Refuses to Bar Depositions of Reinsurer's Top Executives Regarding Unicover and MGA Policies

A New York federal magistrate judge denied a reinsurer's motion for a protective order to bar the deposition of two of its parent company's top executives regarding Unicover and the issuance of corporate guidelines to affiliates about doing business with managing general agents ("MGAs") because neither executive had provided affidavits swearing that they lacked relevant knowledge or that their knowledge was identical to the lower-level executive offered by the reinsurer as most knowledgeable.

This discovery dispute arose from the reinsurance of a series of weather derivative contracts issued by the cedent and backed by certain letters of credit issued by a bank. If there were reinsured losses (and there were), the reinsurers were required to indemnify both the bank and the cedent. The reinsurer alleged that the MGA issuing its reinsurance of these contracts had acted without authority and, therefore, the reinsurance was invalid.

During discovery by the bank, it learned from the reinsurer's president that the parent company had sustained "massive financial losses" arising from Unicover and that, in response, the parent's vice-chairman and chief underwriting officer had issued guidelines to its affiliates for dealing with MGAs. Documents subsequently produced by the reinsurer and the deposition testimony of another executive revealed that the chairman and chief executive officer of the parent company had authored a 1999 memorandum regarding policies for dealing with MGAs. It asked affiliates to "scour" their relationships with MGAs to ensure that they were not conducting business with "unscrupulous" ones. It was further disclosed that the vice-chairman had directed affiliates to use the NAIC's model Managing General Agents Act as a "process template" for MGA dealings. The lower-level executive offered by the reinsurer as most knowledgeable testified that he knew nothing further about Unicover or the motivations or concerns that led these top executives to issue their MGA memoranda.

Under the Federal Rules of Civil Procedure, a party may obtain discovery of any non-privileged matter relevant to the claim or defense of any party, and the party seeking to bar a deposition bears the burden of demonstrating that the proposed deposition would not lead to relevant information. The counterweight, observed the court, is that "'discovery is not boundless, and a court may place limits on discovery demands that are unreasonably cumulative or duplicative.'" While courts have granted protective orders barring the depositions of high-level executives when there is the possibility of harassment or potential disruption of business, particularly if there are lower-level corporate employees with identical knowledge, they are not "immune" from discovery.

In this case, the court found no compelling circumstances warranting a protective order because the employee offered as most knowledgeable actually lacked the relevant knowledge regarding Unicover and the motivations behind the corporate MGA policies; no affidavits were produced by the high-level executives explicitly stating that they lacked the relevant knowledge or that their knowledge was identical to that of the employee produced as most knowledgeable; and the affidavit of the produced executive was insufficient because it fell "well short" of an unequivocal statement that the high-level executives lacked the relevant knowledge. The court also rejected the reinsurer's argument that the information sought was irrelevant, ruling that Unicover and the subsequent MGA guidelines were relevant to the bank's allegation that the reinsurer had failed to conduct oversight of the MGA as required by its MGA policies authored by its top executives.

General Star Indemnity Co. v. Platinum Indemnity Limited, No. 00 Civ. 4960 (LMM) (GWG), 2002 U.S. Dist. LEXIS 17905 (S.D.N.Y. Sept. 25, 2002).


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