In Coverage Dispute, Underwriting, Reinsurance Information Discoverable, Reserves Not

Nat’l Union Fire Ins. Co. of Pitt v. Mead Johnson & Co. (No. 3:11-cv-15-RKY-WGH, Oct. 21, 2011)

This decision involves a dispute over the permissible scope of discovery in an insurance coverage dispute relating to alleged advertising related injuries. In this matter the plaintiff/counter defendant, National Fire Insurance Company of Pittsburgh, Pa., and counter defendant, Lexington Insurance Company (collectively, National) sold insurance policies to the defendants/ counter claimants Mead Johnson & Company and Mead Johnson Nutrition Company (collectively, Mead). In addition to other things, the policies provided coverage for advertisingrelated injuries. The issue in this matter is whether Mead’s policies make it entitled to receive reimbursement for defense and indemnity costs incurred if litigation is brought against it for disparaging advertisements by: (1) a competitor of Mead named PBM Products, LLC; and (2) consumers of Mead products. In its counterclaim, Mead raised issues concerning coverage for consumer claims.

National argued that there was no ambiguity in the material language of the policies and, for this reason, the information being sought in underwriting files was not relevant. The magistrate judge, relying on Federal Rules of Civil Procedure 26, stated that an order preventing all discovery prior to formal legal briefing on the ambiguity issue would only delay a resolution in the case. On this issue, the magistrate judge stated that in interpreting the policies, two primary terms or phrases must be addressed: (1) the court had to determine whether the claims brought against Mead met the policies’ definition of “personal and advertising injury”; and (2) whether Mead provided notice to the insurers “as soon as practicable,” as required by the policies. Neither policy defined the phrase “as soon as practicable.”

On this issue, the magistrate judge concluded that it ultimately may be possible for the court to determine that the definitions of “personal and advertising injury” and “as soon as practicable” are ambiguous. Because the major component of the case involved whether Mead appropriately notified National in a timely fashion of the particular suits, the magistrate judge further concluded that extensive broad-ranging discovery of National underwriting policies and guidelines was not warranted. Nonetheless, the relevancy objection to production of underwriting materials was overruled, however, the Magistrate Judge concluded that the only materials that should be disclosed were those concerning the placement, underwriting, issuance, scope, and application of the policies, and the identities of any persons involved in the decision to underwrite the specific polices.

On the issue of reinsurance, the magistrate judge relied on the decision on Cummins, Inc. v. Ace American Ins. Co., which states that although a reinsurance agreement itself is not likely admissible, certain communications found within reinsurance files can lead to the discovery of admissible evidence about the insurer’s own definition of claims which could fall under its insurance agreements. On this, the magistrate judge overruled the relevancy objection to communications found in the reinsurance files. The magistrate judge concluded that certain confidential business information pertaining to the pricing of insurance should be protected, thus National was afforded the opportunity to redact from any reinsurance communications the pricing involved in the purchase of that reinsurance.

The affidavit of Tara L. Lucas that was submitted in opposition to the claim indicated that the unit responsible for handling Mead’s claims at issue in the case “did not possess, maintain, or rely upon such documentation.” The magistrate judge accepted Ms. Lucas’ representation at face value but concluded that it was likely the insurers would have no manuals, guidelines, or procedures for handling, reviewing, evaluating, denying, or paying claims. The magistrate judge further concluded that National was required to make a person available from the unit responsible for handling Mead’s claims to testify as to what guidelines or procedures for denying or paying claims was in effect from January 1, 2008 through December 31, 2010.

On the issue of relevant reserves, the magistrate judge concluded that reserve information was not relevant to the claim. The magistrate judge sustained the objection to information pertaining to reserves.

Addressing the issue regarding the hiring of Paul Hastings Law Firm, the magistrate judge stated that National was required to identify the number of times the law firm was retained to defend claims brought pursuant to policies for “personal and advertising injury” for the time period commencing April 27, 2008 and ending April 27, 2010. In all other aspects the motion to compel production was denied.

Finally, Tara L. Lucas’s affidavit established an undue burden in responding to the requests presented and because of this the motion to compel production was denied. Regarding Mead’s counterclaim, the Magistrate Judge concluded that the relevancy objection pertaining to consumer claims was overruled. National was required to provide a knowledgeable insurance representative who was capable of addressing whether National sufficiently provided defenses for or paid indemnity for advertising claims brought by consumers. In light of this, Mead’s motion to compel production was granted, in part, and denied in part.

IMPACT — REINSURANCE: In disputes between insurers and their policyholders, insurers’ reinsurance files may be discoverable because they may yield admissible evidence regarding how the insurers interpret their own policies with respect to specific claims and issues.