We don’t expect many of you to remember a 1950’s song (as most weren’t yet born!), What’s Behind the Green Door.* The vocalist, Jim Lowe, was certainly not thinking about insurance when he sang it, but in the insurance world we see a parallel if we consider that there is a “green door” between insurance and reinsurance.
For decades, if not centuries, plaintiffs’ lawyers never looked “behind the green door”, as many were unaware of reinsurance. But reinsurance did not remain a mystery forever. In the last few decades, plaintiffs’ lawyers have increasingly become attuned to reinsurance information and the responsibility of an insurer to report details of losses to its reinsurer. And thus, plaintiffs’ lawyers have sought to discover information about reinsurance.
In many instances, these efforts could be viewed as fishing expeditions to seek information not at issue in the case before the court. The United States District Court for the Northern District of California recently issued a succinct decision that serves as reminder that reinsurance information is not necessarily discoverable. In in re American Bankers Insurance Company of Florida, 4:19-cv-02237, 2020 WL 5739740 (Sept. 4, 2020), the City of Walnut Creek (California) sought discovery of its insurer’s reinsurance information. The insurer objected, arguing that its reinsurance information was not relevant because there were no reinsurance agreements at issue in the case and therefore the “information sought would have no bearing on the coverage issues in controversy.” The City of Walnut Creek continued to press, arguing that the information could lead to evidence that is probative of policy interpretation and the insurer’s past conduct.
The Court denied the discovery, acknowledging that although a reinsurance agreement could be discoverable when it is “directly at issue and relevant to the litigation, and the insurer is the defendant in the case, not an outside party”, such was not the case before the Court. Instead, the Court found that the City of Walnut Creek failed to “explain how reinsurance information is at issue, how it is related to the City’s factual allegations, or how such discovery would be proportional to the needs of the case if it were deemed relevant.”
This decision provides a reminder to insurers and reinsurers that, although parties may seek discovery of reinsurance information, such efforts may be resisted where the information does not relate to the issues before the court. When insurers and reinsurers communicate with one another, they should keep in mind the possibility that someone may be later looking over their shoulder. However, just because there is a “green door” to reinsurance does not mean that Plaintiffs’ lawyers get to stroll right through.