In Golon, Inc. v. Selective Insurance Company of the Southeast, et al., a Pennsylvania federal court recently held that an insurer must produce information about its reinsurance program in an action in which the insured plaintiff alleged its insurer engaged in bad faith in refusing to settle an underlying negligence case.  The underlying case involved a motor vehicle accident resulting in the death of a child in which the insured’s employee pled guilty to vehicular homicide.  The insured and appointed defense counsel recommended that the insurer settle within policy limits, but the insurer rejected this approach, fired the appointed defense counsel, and brought the case to trial with new counsel.  A state court jury awarded $32 million to the underlying plaintiffs, which prompted the insured to file a federal action alleging the insurer engaged in bad faith in refusing to settle within policy limits.

In the bad faith case, the insurer produced a number of documents in redacted form, and refused to produce others.  The insurer claimed that the documents were privileged settlement communications and were not relevant because the documents pertained to reinsurance information.  The court rejected the insurer’s claim of mediation privilege over most of the mediation documents because the insurer was not a party to the underlying lawsuit.  The court also largely rejected the claim of privilege over mediation communications because many of the statements were made by a person present at the mediation to others that were not present.

With respect to the claim that the reinsurance information was not relevant, the court observed that there is no “‘absolute exclusion’ of reinsurance information, as discovery of such information has been readily permitted.”  The court added that state law allowed discovery of reserve information in the claims alleging an insurer’s bad faith refusal to settle.  Accordingly, the court ordered the production of all of the reinsurance documents the insurer had withheld or redacted, but acknowledged that the reinsurance information might not be admissible at trial.

This case underscores that courts are willing to allow the production of reinsurance information to allow insureds to evaluate how their insurers have acted with respect to settlement. It further highlights what we have emphasized before. To the general public, reinsurance is an arcane term, if they in fact have heard of it. But it is not a secret to lawyers whose practice encompasses insurance. Always remember ‘what’s behind the curtain’, as there is a possibility that reinsurance information may be scrutinized by the insured or other non-parties to the reinsurance relationship when the lights go on, and the curtain goes up.