(Article from Insurance Law Alert, November 2016)
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A Tennessee federal district court denied policyholders’ motion to compel the production of information relating to other insurance claims, claims handing, underwriting, loss reserves and reinsurance communications. First Horizon Nat’l Corp. v. Houston Cas. Co., 2016 WL 5869580 (W.D. Tenn. Oct. 5, 2016).
In this dispute arising out of alleged False Claims Act violations, the policyholders sought to compel their liability and excess insurers to produce a broad range of documents. Denying all but one of the motions, the court held:
Similar Claims Material: The court deemed information relating to the insurers’ treatment of other claims to be irrelevant. Rejecting the contentions that such information bears on policy interpretation and the insurers’ alleged bad faith denial of the claims, the court explained that even if the insurers took conflicting positions in other cases regarding the same terms, it would not aid the court in interpreting the policy language at issue. Additionally, the court concluded that requiring production of other claims material would be unduly burdensome.
Claims-Handling and Underwriting Material: Policyholders argued that such materials are relevant to the disputed coverage issues pertaining to “interrelated claims” or when an insurable claims accrues. Rejecting this argument, the court explained that such information is irrelevant because the excess policies at issue followed form to underlying primary policies. Thus, even if the excess policies were ambiguous, the underwriting and claim-handling manuals for those policies would be irrelevant.
Reinsurance Agreements and Communications: The court granted policyholders’ motion to compel the production of reinsurance agreements, ruling that Federal Rule of Civil Procedure 26(a)(1) (which requires a party to produce “any insurance agreement”) encompasses reinsurance agreements. However, the court denied the motion with respect to reinsurance-related communications. Policyholders argued that such communications are relevant because they could “shed light on the Insurers’ intent” and “could reveal whether the insurers believed that these policies covered the claims.” Rejecting this argument, the court accepted the insurers’ contentions (and sworn statements) that reinsurance communications reflect the insurers’ business decision to spread risk and not the substantive issues in the coverage litigation.
Loss Reserves: The court noted that some courts have deemed loss reserves relevant to the insurer’s valuation of the claim and alleged bad faith, while others have denied production based on the “tenuous link between reserves and the legal question of coverage.” The court endorsed the view that reserves set by insurers are a “business judgment and do not reflect a legal determination of the validity of the Plaintiffs’ claims against them.”