Reinsurance treaties almost universally include broad access-to-records clauses that grant reinsurers the ability to review the books and records of the underlying insurance companies they reinsure with respect to the business covered by those treaties. The reason for this is simple: Reinsurers often have as much at risk as, if not more than, the insurance companies do, but the reinsurers routinely have no day-to-day role in either the underwriting of a risk or the handling of a claim. By contract, reinsurers usually follow the fortunes of their insurers and therefore have fairly unfettered access to the records at issue. Thus, reinsurers often retain auditors to review the records of insurers and third-party administrators.
Insurers, however, may understandably be reluctant to share their own legal analysis or attorney work product regarding an underlying claim with a reinsurer for fear that those materials would then become discoverable in underlying coverage litigation. This can have a chilling effect on the reinsurance relationship and the reinsurer’s ability to monitor claims. What materials does an insurer have to share with its reinsurer—and does that access destroy attorney-client privilege or work-product protection? And when an insurer and reinsurer are in a dispute, what audit materials must the reinsurer share with the insurer?