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

California Supreme Court Rules that Nonparty Insurer’s Reinsurance Agreements Are Not Discoverable by Plaintiffs

In a split 4-3 decision, the California Supreme Court ruled that a state civil procedure statute authorizing the limited discovery of a defendant's insurance coverage information does not extend to pretrial discovery of a nonparty liability insurer’s reinsurance agreements for the purpose of facilitating settlement of an underlying tort action. Discovery might be appropriate under “unusual circumstances” such as when a reinsurance agreement is functioning like a liability policy (e.g., fronting arrangement) or is the subject of litigation between the cedent and its reinsurer, but absent those narrow exceptions, it is not authorized by the statute.

This case arises out of the childhood sexual abuse litigation filed against the Roman Catholic Archdiocese of San Diego by 140 plaintiffs. During the court-supervised pretrial settlement process, the plaintiffs sought discovery of reinsurance information from the Catholic Mutual Relief Society, the Church’s U.S. self-insurance fund, and that fund’s wholly-owned liability insurance subsidiary, Catholic Relief Insurance Company of America (collectively the petitioners before the California Supreme Court).

The relevant California civil procedure statute provides for the discovery of “any agreement under which any insurance carrier may be liable to . . . indemnify or reimburse for payments made to satisfy the judgment.” Pursuant to that provision, the settlement judge denied the nonparty petitioners’ motion to quash discovery of reinsurance information and ordered them to produce documents reflecting the total amount of reinsurance available to satisfy any defense expenses or to indemnify losses in connection with the lawsuit against the Church.

The California Court of Appeal vacated the settlement judge’s order holding that the reinsurance documents being sought were not discoverable because the civil procedure statute was limited to discovery of direct insurance policies, not reinsurance agreements.

A majority of the divided California Supreme Court held that the statute in question was ambiguous. Applying its rules of statutory interpretation, the court concluded that this provision was intended to limit discovery to primary insurance policies and not reinsurance agreements absent certain narrow exceptions. This ruling was based, in part, on the court’s view that there is generally no privity of contract between the reinsurer and the insured; that reinsurers are only derivatively liable to indemnify and reimburse the cedent for payment made in satisfaction of the underlying judgment; and that the amounts of policy limits directly available to respond to the underlying judgment are not increased by the existence of reinsurance. Hence, reinsurance information would not be of any relevance to plaintiffs in a vast majority of cases.

The majority was also influenced by the argument of amici curiae (i.e., friends of the court), Certain Underwriters at Lloyd’s, London and Certain London Market Reinsurance Companies, that allowing discovery of any and all reinsurance and retrocessional reinsurance would place an “enormous” production burden on nonparty reinsurers, which the court viewed as resulting in “absurd consequences” not intended by the legislature.

The dissenting justices argued that the obligation to “indemnify or reimburse” in the civil procedure statute “easily encompasses the duty assumed by reinsurers” and that the “clarity” of this language did not require the majority to resort to statutory interpretation to divine legislative intent. Reinsurance, according to the minority, is presumptively a form of liability insurance subject to discovery under the statute.

Catholic Mutual Relief Society v. Superior Court, No. S134545, 2007 Cal. LEXIS 8917 (Cal. Aug. 27, 2007).

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