Saturday, September 8, 2007

No Discovery of Reinsurance Information

Code of Civil Procedure Section 2017.210 Does Not Authorize Discovery of Reinsurance Information

Catholic Mutual Relief Society v. Superior Court (Aug. 27, 2007, S134545, Supreme Court)
25 p. opinion (20 p. majority, 5 p. dissent)

The question in this case was whether Code of Civil Procedure section 2017.210, which permits discovery of specific aspects of a defendant's insurance coverage, authorizes pretrial discovery of a non-party liability insurer's reinsurance agreements. The discovery was sought for the purpose of facilitating settlement of the underlying tort action. The Supreme Court decided 4 to 3 that the discovery of reinsurance information is not permitted.

The non-party petitioner Catholic Mutual Relief Society is, through a wholly owned subsidiary, the liability insurer for more that three hundred archdioceses and other Catholic church entities. Included among them are the Archdiocese of San Diego and the Archdiocese of San Bernardino. The discovery dispute addressed here arose out of an action by 144 plaintiffs against those two Archdioceses for alleged childhood abuse by priests.

As part of normal discovery under CCP 2017.210 the defendant Archdioceses had produced copies of the liability insurance policies issued to them by the Petitioner. The plaintiffs contended that this information was insufficient, that they also need information about the Petitioner's reinsurance agreements in order to determine whether the Petitioner was financially sound enough to cover its policies.

CCP 2017.210 permits discovery of the "existence and contents of any agreement under which any insurance carrier may be liable to satisfy in whole or in part a judgment that may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment."

The majority found the phrase "satisfy the judgment" ambiguous because liability insurers are directly liable to satisfy the judgment in an underlying action, while a reinsurer is only derivatively liable to indemnify or reimburse the liability insurer for payments to satisfy the judgment. To resolve this ambiguity they examined the legislative history of the code provision. They concluded that the provision codified a common law rule permitting limited discovery of a defendants liability insurance coverage. As a consequence it was not intended to, and did not, authorize discovery of reinsurance agreements.
Justice Baxter wrote the opinion. Chief Justice George and Justices Chin and Moreno concurred.

Justice Corrigan dissented. Justices Kennard and Werdegar concurred in the dissent.
The dissenting Justices found no ambiguity in the statute. They would have held that the obligation to "indemnify or reimburse" encompassed the duty assumed by reinsurers. Furthermore the discovery of reinsurance contracts would not result in the revelation of the liability insurer's total assets. Reinsurance is a very specific asset that has value only when liability has been incurred. Liability insurers that had backed up their policies with discoverable assets were in no position to complain about the disclosure of those assets.

Comment: In footnote 5 the majority opinion states that this matter had become moot as to these parties after it had been submitted to the Court of Appeal. The Court of Appeal proceeded because the issue was likely to reoccur and because of the broad public interest of the issue. The Supreme Court obviously agreed with that decision. It is completely coincidental that the underlying action was settled 11 days after this opinion was filed. The settlement was, apparently, triggered by a rapidly approaching Bankruptcy Court deadline. As a side note, many of the 144 plaintiffs brought their actions during the 2003 revival of childhood abuse actions that was the topic of the Supreme Court's Aug. 20, 2007 decision, Shirk v. Vista Unified School District.

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