Discovery Of Reinsurance And Reserve Information Denied
April, 2007
In Zurich American Ins. Co. v. Keating Building Corp., No. 04-1490 (D.N.J), the court denied defendant Keating’s motion to compel production of documents by Zurich relating to discussions with reinsurers about the claim at issue and information relating to reserves.
Facts
A portion of a parking garage collapsed during its construction at the Tropicana Resort and Casino in Atlantic City, New Jersey. Zurich insured Keating under a builders risk policy. Zurich disputes the extent to which the policy provides coverage for debris removal costs, mold damage, water damage and consequential losses. As a result, Zurich filed a complaint seeking declaratory judgment with respect to several insurance coverage issues.
Defendants filed a motion to compel the production of documents containing: 1) Zurich’s discussions with its reinsurers about the claim at issue and coverage for the claim; and 2) information relating to reserves. Keating argued that the documents were relevant to key issues in the case, because the documents would likely shed light on Zurich’s interpretations and application of insurance policy terms. Keating further asserted that no independent privilege or protection existed for reinsurance and reserve-related documents.
Zurich argued in opposition that information relating to reinsurance contracts and reserve information had no bearing on the insurance coverage issues being litigated. Zurich argued that through discovery, Keating had ample opportunity to learn
Zurich’s views concerning the various policy provisions at issue.
Analysis
The court began its analysis by addressing whether documents relating to reinsurance information were discoverable. The court determined that documents regarding communications between Zurich and its reinsurers after the policy had been issued would not assist in determining the mutual intent of the parties in the primary insurance policy. The court also recognized that obtaining reinsurance coverage is based on a business consideration and is not a question of policy interpretation. As a result, the court held that the reinsurance documents were not relevant to the determination of coverage under unambiguous policy provisions and were, therefore, not discoverable. In so ruling, the court distinguished this situation from a case involving ambiguous policy provisions.
Zurich also argued that the common interest doctrine applied to prevent production of reinsurance documents. The common interest doctrine prevents waiver of attorney-client privilege when a privileged document is disclosed to third parties that have an identical legal interest. Keating argued that Zurich waived the ability to assert privilege under the common interest doctrine because it failed to previously assert this protection. Rejecting this argument, the court held that Zurich’s failure to assert the common interest privilege on a privilege log did not result in waiver of the privilege. The court ruled that the common interest doctrine applied to prevent production of attorney work product and attorney-client communications Zurich disclosed to its reinsurers.
The court next addressed the discoverability of documents regarding the loss reserves set for the claim by Zurich. Although recognizing that courts have denied discovery of reserve information in the past, Keating argued that the reserve documents withheld by Zurich would likely contain information about Zurich’s evaluation of the claim. The judge explained that reserves are “only general estimates of liability which do not generally involve a thorough factual and legal basis.”
In declining to allow discovery of reserve information, the court noted that “the individual case reserve figures revealed the mental impressions, thoughts, and conclusions of an attorney in evaluating a legal claim.” As a result, the documents containing reserve information were prepared in anticipation of litigation and should be protected from discovery as opinion work product. The court stressed that the setting of reserves is a business decision that would not be relevant to the policy interpretation issues in the case. The court also rejected the argument that reserve information is more likely to be discoverable in a first-party property case than one involving coverage under third-party policies.
Learning Point
In this case, the court determined that documents relating to reinsurance and reserve information were not relevant and therefore were not discoverable. However, it is important to note that the relevance of reinsurance documents was tenuous because this case involved a dispute over application of unambiguous policy terms. The result may have been different if there had been a finding by the court that one or more of the policy’s provisions were ambiguous.
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