Pennsylvania Federal Judge Orders an Insurer to Produce Information from Underwriting Files Involving Other Policyholders in a Recession Dispute

Discovery disputes in insurance coverage litigation frequently concern whether an insurer must produce information about policies issued to other policyholders or other claims against the insurer involving similar policies or circumstances. Policyholders often seek such discovery to compare the insurer’s position in the disputed claim with positions it may have taken in other claims or under other policies. Insurers typically resist such discovery as being irrelevant to issues involving the particular policy or claim at issue in the litigation. A recent decision by the U.S. District Court for the Western District of Pennsylvania provides some support to the policyholder position that discovery of information regarding other claims or policies should be permitted. However, the decision has its limitations. It should not be seen as a sign that courts will begin to permit broad discovery of other claims or other policies. The decision was rendered in litigation between H.J. Heinz Company and Starr Surplus Lines Insurance Company in which Heinz seeks coverage for losses estimated at $30 million, resulting from contamination in Heinz baby cereal sold in China. Starr sought to rescind the Heinz policy based on the argument that Heinz omitted material information from its application when the policy was underwritten. In discovery, Heinz requested that Starr produce certain information from Starr’s underwriting files for product contamination policies that Starr sold to other companies with annual sales exceeding $8 billion. In an October 1, 2015 Order, the Pennsylvania federal court granted Heinz’s motion to compel and ordered Starr to produce information from its underwriting files. Specifically, the court ordered Starr to produce applications, the applicant’s loss history information, subjective information on each applicant that Starr required during the underwriting process, premiums charged, and any analysis Starr conducted in deciding to issue the policy or set premiums. The court reasoned that the information Heinz requested was relevant to Heinz’s defense to Starr’s rescission claim because “the main mechanism to [defend against Starr’s claim] is through examining other comparable policies issued by Starr and associated risks.” Starr’s concerns regarding confidentiality were addressed by allowing Starr to redact information so that the identity of its other insureds and their business information remained confidential. The court’s decision has implications for similar coverage disputes involving rescission. Rescission, by its very nature, requires a material misrepresentation or omission by the prospective insured in the underwriting process. Arguably, the question of materiality is uniquely susceptible to a comparison of how an insurer evaluated information provided by other applicants when underwriting other similar policies. The Heinz court’s decision recognizes that a policyholder should have the opportunity to test what the insurer considers ”material” when underwriting a policy. Although the court’s ruling suggests insurers may not be able to protect underwriting files from discovery in rescission matters, the impact of the decision will likely be limited to cases involving rescission. In cases involving routine coverage disputes and claims of bad faith, policyholders frequently request information regarding an insurer’s actions in responding to similar claims. Insurers frequently object to such requests, and courts have sustained insurers objections. It is unlikely that the Heinz decision could be used successfully by policyholders to justify discovery of an insurer’s claims files in coverage disputes and bad faith claims that do not involve rescission.

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