Indiana Court Nixes Requests for Reinsurance and Reserves

shutterstock_182629457Early last month a federal court in Indianapolis barred a policyholder from seeking the claims and underwriting files of the defendant carrier’s reinsurer in Indianapolis Airport Auth. v. Travelers Property Cas. Co. of Amer., 2015 WL 1548959, 2015 U.S. Dist. LEXIS 45123 (S.D. Ind., Apr. 7 2015).  Several months ago, the same court also shot down the policyholder’s requests for the insurer’s reserves.

The insured operated the Indianapolis International Airport, and it began construction on the $1 billion Midfield Terminal Project in 2005 and secured a builder’s risk policy from Travelers to cover the work.  On January 24, 2007, temporary shoring towers collapsed, damaging the building, disrupting the original construction schedule, and generating claims by consultants and contractors.  The policyholder made claim for $13.4 million, but the carrier refused to pay more than $4.19 million.  The insured then brought suit, alleging breach of contract and seeking declaratory judgment.

During discovery, the policyholder issued a non-party subpoena to Travelers’ reinsurer, Gen Re, seeking Gen Re’s claims and underwriting files.  The insurer responded with a motion to quash and also requested a protective order barring the insured from discovery of any reinsurance documents from any source.  On April 7th, Magistrate Judge Tim Baker granted the motion.

The Magistrate noted that a litigant could only object to a subpoena directed at a non-party when the litigant could claim some sort of personal right or privilege over the documents sought.  As a party to the reinsurance contracts with Gen Re, however, Travelers clearly had a claim of personal right.

The court then denied production for three reasons.  First, while reinsurance material is relevant if it will aid in construing ambiguous policy terms, it is not discoverable where a coverage dispute involves only unambiguous contractual language.  The Magistrate had already examined the two reinsurance documents that related to the Travelers contract of insurance, and he found that “[t]hey do not speak to Travelers’ intent and do not clarify any ambiguous terms of the policy.”

Second, the court held that the documents in question “contain commercially sensitive information related to Gen Re, none of which is at issue in this case;” the insured was seeking “documents related to Gen Re’s internal underwriting, quotations,  ratings, and premiums, which is confidential and proprietary information of economic value that is unique to Gen Re.”

Third and finally, the subpoena was overbroad and unduly burdensome to the reinsurer in that the airport authority was asking for every scrap of paper relating to the insured, the airport, or the Travelers policy that had been generated over an eight year span.  As the Magistrate explained, “only reinsurance communications that discuss a contested policy [and which] would be relevant to construe an ambiguous term” are properly discoverable.

In Indiana Airport Auth. v. Travelers Property Cas. Co. of Amer., 2014 WL 7360049, 2014 U.S. Dist. LEXIS 176607 (S.D. Ind., Dec. 23, 2014), the same court ruled late last year that reserve amounts are also outside the proper scope of discovery because the policyholder was not alleging bad faith and also because they were simply not probative.  In the words of the court, “reserve amounts are precautionary estimates unrelated to the merits of a claim.”  As the opinion explained, in a 2011 case the Southern District of Indiana had

indicated that loss reserve information is not synonymous with and may not be probative of an insurer’s opinion on true coverage because reserves are set based on business risk and regulatory compliance. . . .  As an estimate for regulatory compliance, the loss reserves are not an accurate assessment as to Travelers’ maximum potential liability on the IAA insurance claim.

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Posted in Builders' Risk, Collapse, Discovery, Reinsurance, Reserves
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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