Reinsurer’s Right to Access Ceding Insurer’s Records

Reinsurer’s Right to Access Ceding Insurer’s Records

 
Section 40.10 of the New Appleman Insurance Law Practice Guide considers the reinsurer’s right to access the ceding insurer’s records. Most reinsurance contracts include a provision (some broader in scope than other) granting the reinsurer the right to inspect or audit the cedent’s books and records. This allows the reinsurer to see what business the cedent is underwriting, how it is handling claims and whether the claims are covered by the reinsurance agreement. Access to documents enables the reinsurer to determine whether the cedent acted reasonably and in good faith in handling underlying claims and in settling and ceding claims to the insurer.
 
A frequent inspection-related issue is the impasse that occurs when a reinsurer’s claim payments are delinquent and it has demanded an audit to verify the claims’ validity, but the cedent refuses to allow the audit until the claim is paid. In one case, a court ordered a reinsurer to make its payments current , despite the reinsurer’s complaint that the cedant had refused it access to records regarding one of the treaties at issue [Am. Home Assurance Co., v. Instituto Nacional de Reaseguros, 1991 U.S. Dist. LEXIS 501 (S.D.N.Y. 1991)].
 
Note that the Ninth Circuit affirmed an arbitration panel’s finding that even in the absence of an audit or inspection provision, the cedent had to furnish information reasonably requested by the insurer [Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)]. Conversely, the existence of a right of inspection defeated a reinsurer’s fraudulent concealment claim in the absence of evidence that the cedent refused to honor the inspection provision [Gerling Global Reinsurance Corp. v. Safety Mut. Cas. Corp., 1981 U.S. Dist. LEXIS 13864 (S.D.N.Y. 1981)].
 
A cedent will be able to disclose its privileged communications to a reinsurer without waiving the right to assert its privilege to other parties if the cedent and reinsurer had a “common interest” when the discourse was made [N. River Ins. Co. v. Phila. Reinsurance Corp., 797 F. Supp. 363, 366 (D.N.J. 1992)]. This doctrine is not applicable, however, when the parties’ shared interests are only commercial [Blanchard v. Edgemark Fin. Corp., 192 F.R.D. 233 (N.D. Ill. 2000)].
 
Cedent and reinsurers that have shared privileged materials sometimes argue that their “common interest” in the outcome of a coverage claim should avoid a waiver of the privilege as against the policyholder. But where coverage opinions and other privileged materials are generated prior to a reservation of rights or denial of a claim by the insurer or in the absence of a direct coverage dispute, courts often reject assertion of the common interest doctrine and find a waiver of privilege when the cedent has disclosed the materials to its reinsurer.
 
In contrast, the majority of courts have held that a cedent’s disclosure of privileged documents and communications to a reinsurer during the course of insurance coverage litigation does not constitute a waiver of the attorney-client privilege [see, e.g., Minn. Sch. Bds. Ass’n Trust v. Employers Ins. Co. of Wausau, 183 F.R.D. 627 (N.D. Ill. 1999)]. When a cedent wishes to disclose privileged information to its reinsurer after settlement or adjudication of an underlying coverage action, but prior to the institution of arbitration or litigation against the reinsurer, it is unclear whether the common interest doctrine will apply. When a cedent voluntarily discloses privileged communications to a reinsurer during the course of a dispute involving a claim for reinsurance, it may not have the ability to assert the common interest doctrine [see, e.g., N. River Ins. Co. v. Columbia Cas. Co., 1995 U.S. Dist. LEXIS 53 (S.D.N.Y.)].        
 
Section 40.10 of the New Appleman Insurance Law Practice Guide suggests measures cedents can take in an attempt to avoid waiver of the privilege as against their policyholders, including the execution of common interest agreements with their reinsurers.