Unlike typical litigation, in which the flow of information in discovery is balanced in each direction, the flow of information in coverage litigation traditionally has been from the policyholder to the insurer. This is because the question of coverage normally begins with the policy and the lawsuit (or proof of loss), while the remaining details necessary to determine coverage (whether all of the policy conditions are met or whether any exclusions apply) are usually in the hands of the insured, to be discovered by the insurer.
More recently, however, sophisticated policyholders have been asking for a great deal of information from insurers in coverage litigation discovery. In addition to seeking the claims file and underwriting file regarding the claim at issue, policyholders are increasingly asking for a broad range of documents from insurers in discovery, including policy-drafting histories, advertising/marketing documents, reinsurance treaties, communications with reinsurers, communications with other insurers, reserve information, regulatory approval information, claims manuals/guidelines, claims handler training materials, claims files from other similar claims, and complaints filed against the insurer with regulatory agencies on the insurer’s handling of other similar claims (collectively “extra-contractual materials”). Policyholders generally argue that such information can provide strong evidence either identifying or clarifying what the policy language actually means.
The tactic of seeking extra-contractual materials creates a strategic advantage for policyholders, regardless of whether such information is likely to aid in the discovery of the parties’ contracting intent. Issuing requests for such a wide range of documents effectively costs the policyholder almost nothing. It does not cost the insurer much more to object to such requests. However, if a court orders the insurer to find and produce these various categories of documents, that process can cost an insurer thousands and perhaps tens of thousands of dollars in attorney fees, lost employee time, and expenses associated with electronic discovery. Regardless of whether these extra-contractual materials should be discoverable, the strategy of seeking such documents by a policyholder can put tremendous pressure on an insurer.
A review of the case law on this subject reveals widely disparate results when policyholders attempt to compel production of extra-contractual materials. This article identifies why courts either compel or refuse to compel insurers to produce this information, and discusses strategies used by policyholders and insurers when litigating discovery of extra-contractual materials.