The Insurer’s Dilemma: To Produce, or Not to Produce?

by Zelle LLP

Zelle  LLP

Texas Law360
April 19, 2017

Request for Production Number 25: Produce the entire underwriter’s file for underwriting the policy.” This familiar discovery demand has become far too common in the realm of insurance coverage litigation, and the request is undoubtedly met with reluctance by the insurer. To produce, or not to produce? There is scarce case law on the issue, and few scholars have dedicated the time to articulating substantive reasons an insurer can (and may need to) withhold or object to producing the underwriting information.

Be mindful of confidential business information.

The purpose of underwriting is to determine if the risks presented on an insurance application are acceptable to the insurer, and from there, the insurer can informatively decide to issue the policy to the applicant. Throughout the process, the underwriting company applies company standards—proprietary business information—to assess the risk.[1] In the context of property insurance, underwriters review the type of property, value of the property, condition of the property, construction or maintenance of the property, prior losses associated with the property and overall use of the property.[2] To evaluate the risks, underwriters may rely upon site inspection reports, business financial statements and reports, or statistical applicable risk reports from the property and casualty insurance industry itself.[3] Together, these factors and analyses may comprise confidential business information and strategies that may need to be withheld or produced subject to a confidentiality order.

Is it relevant?

Additionally, discovery of the underwriting file should be permitted in only limited circumstances when such information is relevant to the issues in the case. Information is discoverable as long as it is likely to lead to the discovery of admissible evidence, and under the rules of evidence, discovery may be obtained about a matter relevant to the subject matter of the case. Courts have sometimes permitted discovery of the underwriting file on the basis of relevance when policy interpretation is at issue.[4]

As one federal district court explained, where the policy terms are ambiguous, the file materials may suggest an interpretation unrealized by either party.[5] In this scenario, it is reasonable to believe that the underwriting evidence may show the coverage intent of the policy drafters. Or, by a linguistic process of elimination, it may determine whether alternative explicit language was specifically rejected and as such, intent can be ascertained.[6] Conversely, courts have appropriately denied discovery of underwriting files when the insured has failed to identify an ambiguity in the policy and has no other basis for its use.[7] In other words, if the issue before the court does not truly concern an issue of policy interpretation, the underwriting materials are likely irrelevant.

The Northern District of Texas recently applied this general rule in Guadardo v. State Farm Lloyds.[8] The case involved a dispute arising out of plaintiffs’ insurance claim for hail and/or wind damage to their residence. Plaintiffs sought production of the insurance underwriting file on grounds that such information was relevant to the subject matter of the lawsuit.[9] Defendant State Farm Lloyds argued that the request was overbroad and irrelevant to the claims at issue.[10] The court declined to compel production of the underwriting file because plaintiffs failed to provide any basis demonstrating that the materials were relevant to any disputed issue.[11]

Ambiguity rarely necessitates the use of extrinsic evidence.

While claiming the existence of ambiguous language provides a platform to claim relevance, the need to resort to the underwriting file should rarely occur. First, many property insurance disputes involve the scope of damages rather than contentions over the meaning of policy language. For example, in Texas, many residential property insurance disputes have little to do with policy language interpretation and, instead, stem from differences between the parties’ estimates of the costs to repair or replace the damaged property. There has been a recent trend throughout Texas whereby claimants tack-on boilerplate, factually baseless claims for fraud or unfair settlement practices, but nonetheless, these claims provide no basis for discovery of the underwriting file. The underwriting file is simply irrelevant under such facts. Nonetheless, even in cases where alleged ambiguity exists and the parties seek court intervention, the underwriting materials are of questionable value. For centuries, qualified, experienced judges have appropriately interpreted allegedly ambiguous contract provisions without the use of extrinsic evidence using well-settled rules of construction, such as the plain meaning rule or “four corners rule.” These methods of interpretation look solely to the reasonable meaning of the language itself, and parties frequently entrust courts to ascertain the parties’ intent without reliance upon extrinsic evidence. Only in the most unusual circumstances should an underwriting file serve as extrinsic evidence to clarify an ambiguity.

Granted, there are situations in which information in the underwriting file is necessary to resolve an issue, but the scope of disclosure should be limited. For instance, when alleged ambiguity is the basis for discovery of the underwriting file, the court should restrict discovery to those portions of the underwriting file that relate only to the purported ambiguous provision.[12] Broad underwriting requests should also be tempered. Because the underwriting files may contain trade secrets or proprietary business information regarding another insured, courts have denied access to the underwriting files of other insureds because of the confidential nature of the information as well as the undue burden to produce such materials in the first place.[13]

Effective representation may entail reluctance to production.

Understanding the limited circumstances in which an underwriting file may properly be discoverable, and the proper limitations on any such discovery, fosters effective representation. The underwriting file normally contains sensitive, proprietary business information which should only be discoverable in the most unusual circumstances. Moreover, unless the policy language is deemed ambiguous, the underwriting file is not relevant. Even if the court finds ambiguity, traditional methods of contract interpretation will ordinarily suffice without the need to resort to extrinsic evidence. There are other obvious reasons why certain information in the claims file may not be discoverable. For example, the underwriting file may contain correspondence between an attorney and the underwriter. At the very least, this type of information is privileged and subject to being withheld.

In short, a request to produce the underwriting file should be carefully considered and analyzed to determine whether the production is appropriate at all and/or the extent to which any production should be limited.

[1] UNDERWRITING—WRITE IT RIGHT!, Cape Education Inc. (2001),

[2] Id.

[3] Id.


[5] See, e.g., Lawyers Title Ins. Corp. v. U.S. Fidelity & Guaranty Co., 122 F.R.d 567 (N.D. Cal. 1988).

[6] Houser, supra note 4.

[7] See, e.g., Cato Inst. Inc., v. Const’l Cas. Co., 2011 U.S. Dist. LEXIS 91318, at *14-15 (D. Md. Aug. 16, 2011); see also Builders Mut. Insurance Co. v. Parallel Design & Dev. LLC, 2010 U.S. Dist. LEXIS 142870, at *6 (E.D. Va. Oct. 5, 2010).

[8] Guadardo v. State Farm Lloyds, 2015 LEXIS 182520 at *6 (N.D. Tex. Dec. 21, 2015).

[9] See id.

[10] Id.

[11] Id.

[12] See, e.g., Phoenix Insurance Co. v. Your Vitamins Inc. 2013 U.S. Dist. LEXIS 15479, at *4-5 (d. Nev. Feb. 5, 2013).

[13] See Houser, supra note 4.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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