Reinsurance Newsletter - December 2013: New York Federal Court Special Discovery Master Makes Privilege Determinations

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Harbinger F&G, LLC v. OM Group (UK), No. 12-CV-5315 (AJP), 2013 U.S. Dist. LEXIS 132009 (S.D.N.Y. Aug. 22, 2013).

A parent corporation sold to a purchaser one of its subsidiaries, a Maryland domiciled life insurance company.  Under the terms of the transactional agreement, the purchaser was to seek regulatory approval from the Maryland Insurance Administration (“MIA”) for the transfer of assets to a reinsurer, which was owned by the purchaser.  In the event that the MIA required the terms of the agreement to be materially changed or altered in a manner that adversely affected the purchaser’s economic benefits, the purchaser would be entitled to a refund of up to $50 million.  To receive a refund, however, the agreement first required the purchaser to have taken remedial efforts. 

After the MIA denied approval of the reinsurance transaction, the purchaser demanded payment of the $50 million refund.  The parent corporation refused, contending that the purchaser failed to satisfy the conditions of payment regarding the remedial efforts.  The purchaser asserted it was not required to undertake remedial efforts because the MIA’s denial of approval did not require any “change or alteration” to the terms of the transactional agreement.  Alternatively, it asserted that it complied with the remedial efforts provision in the agreement.  As such, the court addressed the issue of whether the purchaser was obligated to undertake remedial efforts, and if so, whether it satisfied such obligation. 

The issues before the Special Master concerned assertions of attorney-client privilege and attorney work product claims made on a discovery privilege log of the purchaser.  The seller claimed that the privileges were improperly asserted or otherwise waived by selectively disclosing certain attorney documents.  In recommending in favor of the purchaser, the Special Master found that the purchaser did not selectively disclose documents for tactical advantage, and that fairness did not require disclosure of communications on the broader subject of efforts to engage the parent corporation in the negotiation of alternative terms to the agreement.