In an unusual and noteworthy publicly-reported discovery battle between a cedant and reinsurer, the cedant sought to protect almost twenty years of historical reserving information relating to late notice of asbestos claims against its insured, on grounds of relevance and attorney-client privilege. R&Q Reinsurance Co. v. St. Paul & Marine Ins. Co., Civil Action No. 16-1473, 2017 WL 3272016 (E.D. Pa. Aug. 1, 2017).  Its efforts failed: the Court rejected the cedant’s argument that its historical  reserves are protected by the attorney-client privilege or work-product doctrine, and ordered the production of the historical reserving information as well as the cedant’s reporting to other reinsurers concerning the same asbestos claims.  This decision undercuts the arguments of some cedants who seek to withhold direct claim file information based on the broad-truth argument that all claim-handling decisions are cloaked by the attorney-client privilege.

In this ongoing litigation, the parties dispute the extent of R&Q Reinsurance Company’s (R&Q) obligations under a facultative reinsurance certificate (the “Certificate”) issued by R&Q to St. Paul & Marine Insurance Company (“St. Paul”).  In the early 1980’s R&Q facultatively reinsured an excess liability policy St. Paul issued to the Walter E. Campbell Company (“Campbell”), under which policy St. Paul began paying asbestos claims in about 2001. Despite the erosion of the St. Paul excess policy, St. Paul did not provide first notice of the Campbell asbestos claims until April 2013.

Following receipt of St. Paul’s billing, R&Q filed suit seeking declaratory relief that it has no liability to St. Paul under the Certificate by reason that St. Paul breached the Certificate by providing egregiously late notice of the Campbell asbestos claims to R&Q in violation of the Certificate’s prompt notice of loss provisions. St. Paul cross-claimed, alleging breach of contract, and seeking in excess of $4,000,000 in damages.

R&Q’s motion to compel discovery addressed three issues:  First, St. Paul, in much of its document production, redacted historical loss reserves related to the underlying Campbell excess policies; second, St. Paul did not disclose documents or respond to interrogatories related to other reinsurers of the same and other St. Paul excess policies responding to the Campbell asbestos claims; and third, St. Paul redacted documents and refused to answer interrogatories regarding similar information on the basis that it is “proprietary information.”

In granting R&Q’s motion to compel, the court addressed R&Q’s requests from St. Paul for these three different categories of information: 1) historical loss reserves, 2) information related to other St. Paul reinsurers of the same and other policies St. Paul had issued to Campbell in the early 1980s, and 3) proprietary information.

In addressing St. Paul’s historical loss reserve information, the court noted that whether historical loss reserves constitute work-product or if they are protected by attorney-client privilege is a case by case inquiry. Id. In this case, the court held that St. Paul’s historical loss reserves for the Campbell asbestos claims are relevant to R&Q’s contention that St. Paul did not provide prompt notice of those claims to R&Q; and given that reserves must be set up after St. Paul had notice of the subject losses covered under its policies, this information might demonstrate when St. Paul was required to provide notice of potential losses of the Campbell policies. Id. Further, the reserve amounts R&Q sought did not fall under either the work-product doctrine or the attorney-client privilege. Id. Notably, the court held that claims adjustors, not attorneys, created the requested historical reserving information in the ordinary course of business. See Safeguard Lighting Sys., Inc., 2004 U.S. Dist. LEXIS 26136, at *8, 2004 WL 3037947.

The court also rejected St. Paul’s argument that disclosure of reserve information contravenes public policy because this suit involves a reinsurer requesting information from the reinsured relating to the underlying insured; R&Q was not requesting information related to St. Paul’s reserves that are related to the pending suit.  R&Q Reinsurance Co., 2017 WL 3272016 at *3. The court observed that some courts are reluctant to allow disclosure of insurer’s’ reserve information to the insured, even when established by non-attorneys, because reserves can be considered an estimate of the insurer’s potential liability to its insured. But in this case, the court held that the reinsurer (R&Q) had requested from the reinsured (St. Paul) historical reserve information related to claims against the direct insured (Campbell). Id. Because that reserve information reflected St. Paul’s estimate of its potential liability under the Campbell policies, not from its lawsuit with R&Q, the Court granted R&Q’s motion with respect to St. Paul’s historical loss reserves. Id.

Second, in addressing the information sought relating to other reinsurers, the court stated that while reinsurance contracts with other reinsurers, and with different terms, are not normally relevant to determining adequate notice to another reinsurer, here that information regarding whether and when the reinsured gave notice to other reinsurers of the same underlying asbestos claims is relevant to R&Q’s late notice defense. Id. The court, observing that St. Paul began defending Campbell claims in the 1980’s but failed to provide notice to R&Q until April 2013, concluded: “The decades-long dearth of information regarding notice impairs R&Q’s preparation of a late notice argument.” Id. However, if a reinsured does not provide notice to the reinsurer until many years after the underlying claims accrued, whether and when the reinsured gave notice to other reinsurers for the same class of underlying claims becomes relevant.” See Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., Civ. A. No. 09-853, 2012 WL 12896163, at *9 (N.D.N.Y. Dec. 21, 2012). Thus, the Court found the St. Paul documents relating to other St. Paul reinsurers, because they also reinsure the same and other policies issued to Campbell, to be relevant and discoverable.

Finally, in addressing St. Paul’s contention that certain requested information is “proprietary” and therefore not discoverable information, the Court held this information to be  protected by the Court’s previously implemented protective order.  Thus, the court held that St. Paul could not now, “in the absence of any further justification, withhold or redact as ‘proprietary’ documents already covered by the protective order.” R&Q Reinsurance Co., 2017 WL 3272016 at *2. Thus, the court granted R&Q’s motion to compel with regard to all three categories of discovery requests.

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