In today's complex work of insurance, many insurance risks are "reinsured" by a separate insurance carrier. In those instances, it is not unusual for insurers and reinsurers to have regular communications concerning the insured, and in particular, concerning matters about which they both have an interest. Most of the time, the insurer and reinsurer consider such communications to be confidential, and not subject to discovery. However, whether seemingly confidential communications between insurers and reinsurers is discoverable in litigation involving an underlying insured is not a clear cut question. Outside of Texas, there is a split of authority regarding the issue of discoverability of reinsurance communications. A recent order issued by the Northern District of Texas demonstrates that such communication can be discoverable if an insured can persuade the court that the sought after information is relevant to his or her underlying claims.
In Klein v. Federal Insurance Company, Chief Judge Sidney Fitzwater of the Northern District of Texas ordered the production of reinsurance information in a class action dispute between plaintiffs and an excess insurer involving insurance coverage after the court approved a settlement of the suit. The class action plaintiffs sought the production of reinsurance documents held by the insurer and claimed the documents could contain information relevant to the issue of "notice" of the underlying personal injury claims.
The insurer withheld the documents and claimed that the documents contained confidential reinsurance information. Primarily, the insured argued that courts generally refuse the production of reinsurance agreements and communications when such communication is relevant solely for the purposes of interpreting an underlying policy. The insurer also urged that the information being sought was highly sensitive because reinsurance information is a critical component of the insurance company's financial stability. Lastly, the insurer stated that an insurer’s decision to purchase reinsurance is based on internal business considerations rather than an evaluation of a claim or interpretation of an underlying policy.
Despite the insurer's arguments, the court ordered the production of the reinsurance information and held that the information was relevant for the issue of notice within the insurance coverage litigation, which was at issue in the coverage case. The court held the insurer's merely articulated general reasons why courts often refuse the discovery of reinsurance information and did not adequately show why discovery should be precluded specifically in this case. Moreover, the court found that the reinsurance information in this case was nearly thirty years old, thus the withholding of the information appeared to hold little merit under these facts. The court also reminded the insurer that it could move for a protective order to protect against public disclosure of the reinsurance documents.
The current state of the law does not provide a bright line rule regarding the discoverability of reinsurance communication. However, insurers and reinsurers should be aware that although their communication is regarded as confidential for business purposes, the communication may not be withheld as confidential for discovery purposes. Thus, such communication may be held as discoverable in litigation involving insurance coverage disputes when the seeking party demonstrates the communication is relevant to an issue involving his or her claims.
Insurers and reinsurers faced with a discovery request of confidential reinsurance communication should realize they may not be able to rely on general arguments relating to confidentiality of the information. Rather, insurers and reinsurers must be able to articulate specific reasons why discovery of such information should be precluded. Insurers and reinsurers should carefully analyze the relevancy of the communications to the insured’s underlying claims. When appropriate, insurers and reinsurers should strongly contest the production of reinsurance information by insisting the communication is not relevant to the insured’s causes of actions. This is especially true if the seeking party seeks the communication solely for the interpretation of the underlying policy. If production of the communication is unavoidable, the insurer and reinsurer should move for a protective order to protect confidential information from public disclosure.
 Klein v. Fed. Ins. Co., Nos. 7:03-CV102-D, 7:09-CV-094-D (N.D. Tex. July 14, 2014).