Great Lakes Dredge & Dock Co. v. Commercial Union Assurance Co.

RULING ON PLAINTIFF’S MOTION TO COMPEL UNDERWRITERS TO ANSWER DISCOVERY LEFKOW, United States Magistrate Judge: Plaintiff, Great Lakes Dredge and Dock Company, seeks discovery from a group of defendant “Underwriters” concerning the reinsurance or lack thereof of the policies at issue in this litigation. Underwriters vigorously oppose the motion on the basis of irrelevance, disputing all of Great Lakes’ arguments and authorities. Underwriters cite Leksi Inc. v. Federal Insurance Co., 129 F.R.D. 99, 106, 115 (D.N.J.1989); Independent Petrochemical Corp. v. Aetna Cas. & Surety Co., 117 F.R.D. 283, 286-88 (D.D.C. 1986); and Rhone-Poulenc Rorer, Inc. v. Home Indemnity Co., 139 F.R.D. 609, 612 (E.D.Pa.1991), all of which denied discovery of reinsurance information in coverage disputes similar to this one. In Leksi the movants argued that information regarding reinsurance was relevant to the insurers’ interpretation of the scope of coverage. Leksi 129 F.R.D. at 106. Noting that the decision to reinsure is based on business considerations rather than policy interpretation, the court found the relevance “very tenuous” and denied discovery. Id. In Independent, the court likewise denied discovery of reserves and reinsurance on the basis of “very tenuous” relevance to the issue of policy coverage. Independent, 117 F.R.D. at 288. Somewhat differently from the movants in those cases, Great Lakes contends that the requested information concerning reinsurance is relevant to the issue of whether two $40 million primary policies existed rather than one. If reinsurance existed for two policies, Great Lakes believes that would be an admission of coverage. On the other hand, the absence of reinsurance would indicate Underwriters had a bad faith motive to deny coverage. [504] This really is the same issue of intention raised in Leksi and Independent. Underwriters’ purchase of reinsurance may show their subjective belief or intention, but it does not mean a primary insurance policy was in effect.1 If, however, other evidence supports plaintiffs position that the policy was in effect, reinsurance in the face of denial of coverage might suggest bad faith. Great Lakes also believes bad faith would be demonstrated with the opposite outcome— lack of reinsurance. That hay could be made from either outcome is probably the best demonstration that the probative value of this information is little. National Union Fire Ins. Co. v. Continental Illinois Corp., 116 F.R.D. 252 (N.D.Ill.1987), on which Great Lakes relies, is distinguishable. There, communications regarding reinsurance were found relevant to whether the insurers had relied on allegedly material misrepresentations of the defendants, an issue not present in this litigation. The court concludes that the relevance of “all documents” relating to reinsurance is too attenuated to be discoverable under the relevant evidence standard of Rule 26.2 Nevertheless, reinsurance policies are discoverable under Rule 26(a)(1)(D). See National Union, 116 F.R.D. at 84. The rationale of National Union requiring discovery under this rule is not undermined by the distinction the Underwriters raise, that in a declaratory judgment action reinsurance documents are not discoverable because there is no monetary liability at stake.3 The source of the distinction is Rhone-Poulenc Rorer, Inc. v. Home Indemnity Co., 1991 WL 237636 (E.D.Pa. Nov. 7, 1991) (“Rhone-Poulenc II”), where the court said the automatic discovery rule did “not necessarily” apply in a declaratory judgment action, adding that “rule 26(b)(2) [now 26(a)(1)(D) ] does not contemplate hypothetical future eases, but only the instant case.” Id. at *2. But in that case some of the claims were monetary claims, so the discussion is dicta. Likewise, in American Colloid Co. v. Old Republic Ins. Co., 1993 WL 222678 (N.D.Ill. June 21,1993), the declaratory judgment distinction from Rhone-Poulenc II was a ready basis to reject an argument, but because monetary damages were at stake the court did not need to analyze the issue. In National Union, which was principally a declaratory judgment action concerning coverage, the liability of the putatively insured defendants arose from underlying litigation. Although the precise nature of the pleadings is not revealed in the cited decision, the court did note in reference to the Rule 26 language “payments made to satisfy the judgment,” Rule 26(b)(2) does not depend on the scope or amount of indemnification. It is enough that the reinsurers would be liable to Insurers for part of any judgment based on the Policies. National Union, 116 F.R.D. at 84 n. 12. The court’s discussion of the policy considerations underlying the rule, which include enabling counsel to make realistic assessments of both settlement and litigation strategy, id. at 84-85, support its broader reading of the rule. A declaratory judgment against Underwriters in this case will lead inevitably to the payment of monetary claims. For these reasons, the reinsurance policies are discoverable. Great Lakes is not persuasive in arguing that whether the Underwriters after the flood discouraged other insurers from providing insurance to Great Lakes is relevant to their motives in denying coverage. There is no claim such as intentional interference with business relations that would suggest discovery regarding unrelated entities is genuinely needed. This discovery is denied. [505] It is therefore ordered that Great Lakes’ Motion to Compel Underwriters to Answer Discovery is granted in part and denied in part. Footnotes [1] Reinsurance agreements, which at best reflect an undisclosed unilateral intention, are irrelevant to determining the intent of the parties to the primary insurance contract. Thus, they would be non-discoverable even were a finding of ambiguity made. Rhone-Poulenc, 139 F.R.D. at 611-12. [2] This ruling includes information regarding reserves. [3] Rule 26(a)(1)(D) refers to "any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment" (emphasis added).