Reinsurance agreements and initial information | White and Williams LLP
A recent North Carolina federal court ruling adds to a list of cases requiring defendants of an insurance company in coverage actions to file reinsurance agreements as part of their initial disclosures under of the Federal Rule of Civil Procedure 26. Although the list may go on, many of them The decisions take an overly simplistic and universal approach that ignores the complexities of reinsurance and the wide variety of coverages. reinsurance which may or may not apply to a policyholder’s claim under an insurance policy. It would be preferable for courts to take a case-by-case approach to determine whether the disclosure of reinsurance agreements advances the policy objectives underlying the disclosure requirement of Rule 26 – namely, “to enable lawyers to two parties to make the same realistic assessment of the case, so that the settlement and litigation strategy is based on knowledge and not on speculation. “ While there may be unique or special circumstances in which disclosure could serve these purposes, in the majority of coverage cases reinsurance is absolutely irrelevant.
In United States Tobacco Cooperative v. Certain insurers at Lloyd’s, The United States Tobacco Company (USTC) has filed a lawsuit against 13 Lloyd’s unions (unions) seeking coverage for damage to tobacco growers from Hurricane Matthew. The USTC filed a compelling motion arguing that the unions ‘initial Rule 26 disclosures were flawed for a number of reasons, including the unions’ failure to produce reinsurance agreements. The unions argued that his reinsurance agreements were irrelevant. The court ruled that Rule 26 (a) (1) (A) (iv) required disclosure of reinsurance agreements, explaining that “the only relevant question here is whether a reinsurer may be required to pay any part of it. ‘a judgment against the [Syndicates]. The court did not rely on any previous decisions, but cited the Advisory Committee’s notes on the 1970 amendments to rule 26 and concluded that the production of reinsurance agreements met the disclosure requirements.
While the United States Tobacco Cooperative the Court offered no further analysis beyond the reference to the Rule itself and to the Notes to the Advisory Committee, courts in previous cases have proceeded to more fully consider the issue of disclosure. In 2016, the court of Certain underwriters in Lloyd’s v. Amtrakalso ordered the production of reinsurance agreements. Although the court recognized the difference between insurance policies and reinsurance contracts, it interpreted “insurance” and “reinsurance” as functional equivalents under Rule 26 (a) (1) (A) ( iv). The court rejected Lloyd’s arguments as to why reinsurance deals, which Lloyd’s said could exceed 1,000, would have no impact on the potential settlement. The court concluded that “the availability of reinsurance could very well affect a insured willingness to settle, especially when the solvency of a direct insurer may be an issue. »More recently, in Estate of Brown v. Lambert, a California federal court has required a self-insured city to produce reinsurance contracts issued under California Common Powers Authority law. The city only disclosed after a lawsuit resulting in a verdict of $ 6 million that its ultimate liability was limited to a $ 3 million retention above which reinsurance contracts offered 50 million coverage. of dollars. Although these facts presented a unique scenario in which reinsurance contracts were arguably relevant to the parties’ “realistic assessment” of the case, the court said that “relevance is not a proper investigation in the species ”.
The rigid application by the courts of Rule 26 (a) (1) (A) (iv) requiring the initial disclosure of reinsurance arrangements ignores the important differences between insurance and reinsurance, the wide variety of Reinsurance coverages that may apply and the difficulties that insurers face determine at an early stage of litigation whether reinsurance may even be involved. Specifically, court decisions ignore key factors such as the following:
- reinsurance is very different from insurance for the purposes of case assessment, settlement and trial preparation – while policy limits may be a factor in settlement discussions, reinsurance limits do not affect not the regulation;
- while insurers often monitor claims settlement decisions against their policyholders, reinsurers generally do not monitor the settlement of claims against insurers;
- While some policyholders may have limited financial resources, the solvency of an insurance company is rarely discussed;
- reinsurance treaties generally provide broad coverage and do not apply on a policy specific basis;
- reinsurance is often written on an excess loss and layered basis – without a clear understanding of the extent of the potential damage and the basis, it can be difficult, if not impossible, to determine whether a particular reinsurance arrangement may apply (eg an insurer required to produce its catastrophe treaties?); and
- reinsurance may also apply on a different basis than the insurance policy applies to the underlying claims (for example, based on definitions of covered activity or occurrence of claims).
The approach of some courts to initial disclosures contrasts with the way courts have approached the discovery of other reinsurance-related information, including communications between insurers and their reinsurers, in the context of a insurance coverage dispute. In this context, the courts examine the relevance and systematically refuse to require the production of such documents because they are not relevant. It would be preferable for courts to take a similar case-by-case approach to the disclosure of reinsurance arrangements under Rule 26 (a) (1) (A) (iv). While there may be unique circumstances where reinsurance is relevant to counsel’s assessment of the case and potential settlement – such as the Lambert Where reinsurance has functioned more like insurance than traditional reinsurance – in the overwhelming majority of cases, reinsurance arrangements will not affect the policyholder’s claims against their insurer.
 Fed. R. Civ. P. 26 (a) Advisory Committee Notes on the 1970 Amendment.
 No 5: 19-CV-430, 2021 Dist. LEXIS 69206 (EDNC April 9, 2021).
 No. 14-CV-4717, 2016 Dist. LEXIS 64088 (EDNY May 16, 2016).
 No. 15-CV-1583, 2020 Dist. LEXIS 117235 (SD Cal. July 2, 2020).
 See, for example, Cummins, Inc. v. ACE Am. Ins. Co., N ° 1: 09-cv-738, 2011 Dist. LEXIS 4568, p. * 29-31 (SD Ind. January 14, 2011) (refusal to order the production of reinsurance contracts when the plaintiff did not contest the capacity of the defendant insurer to satisfy the judgment and that the contracts were not relevant to hedging or bad faith issues).