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November 21, 2016 Articles

Reinsurance: The Risks and Rewards of Sharing Information

Reinsurers have broad access to insurance company records. What does that mean for reinsurers, insurers, and their opponents?

by Peter Steffen

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?

What an Insurer Shares with a Reinsurer

As an initial matter, it is important to note that an insurer’s claim file likely contains many documents that are not privileged. For example, communication between the insurer and the insured, pleadings filed in litigation, and ordinary accounting records are not privileged. Thus, in any litigation between an insured and insurer, those documents are already subject to discovery. Sharing these documents with a reinsurer cannot possibly increase any risk that these documents will ultimately be turned over in coverage litigation.

But what about an insurance company’s legal analysis of a claim and its communications with its coverage counsel? If those are shared with a reinsurer, do they lose their protected status? In a word, maybe. Unfortunately, there is no simple, bright-line rule that applies in all 50 states. The answer depends on how courts decide to apply what is known as the common interest doctrine.

The Common Interest Doctrine

The common interest doctrine provides that if a document would normally be covered by the attorney-client privilege or the work-product doctrine, it can be shared with another party “for the limited purpose of assisting in their common cause.”[1] The purpose of the common interest privilege is to permit litigants “who share unified interests to exchange this privileged information to adequately prepare their cases without losing the protection afforded by the privilege . . . and to allow persons with common litigation interests . . . to communicate freely and in confidence when seeking legal advice.”[2]

Where the primary common interest is merely a joint business strategy, however, that is insufficient to demonstrate a common legal interest.[3] As one court has explained, a common interest can exist between an insurer and its reinsurer, but the common interest must be “identical, not similar, and be legal, not solely commercial.”[4] In that case, Allendale Mutual Insurance Co. v. Bull Data Systems, the insurer sought a protective order to prevent reinsurance documents from being produced to a policyholder in coverage litigation. While the court found the documents were not privileged, it added that even if they had been, disclosure to reinsurers would have destroyed any assertion of privilege. The court’s finding hinged on its determination that the communications at issue were produced in the ordinary course of business and nothing that was shared with the reinsurer was shared “for the purpose of maintaining a common legal interest.”[5]

Cases Finding a Waiver of Privilege

Courts in some states have found that documents shared with a reinsurer must be turned over in coverage litigation. In New York, insurers have been found to have “waived any attorney-client privilege with respect to documents transmitted to reinsurers.”[6] New York courts have determined that “the relationship between insurer and reinsurer is simply not sufficient to give rise to the common interest privilege.”[7]

Similarly, in Iowa, a court found that disclosure to the reinsurer constituted a waiver of privilege because the insurer and reinsurer did not share a common interest.[8] In Progressive Casualty Insurance Co. v. Federal Deposit Insurance Corp., the court found that just because a reinsurer is responsible for covering an insurer’s obligations, the reinsurer and insurer do not automatically share a joint legal interest. Rather, the relationship is primarily “commercial and financial,” unless there is evidence establishing “a joint legal strategy or legal enterprise.”[9] A similar finding was issued a few years ago by a federal district court in Kansas.[10]

Cases Finding the Privilege Maintained

In Florida, however, the common interest doctrine has been found to protect documents shared with a reinsurer. In Employer Reinsurance Corp. v. Laurier Indemnity Co., a reinsurer, ERC, disputed the insurer’s allocation of the settlement of a particular underlying claim between ERC and another reinsurer, Swiss Re.[11] ERC sought to compel the production of all communications the insurer had with Swiss Re relating to the underlying claim. While ERC, Swiss Re, and the insurer all originally shared a common interest regarding the underlying claim, once the insurer made its allocation decision, the parties were no longer aligned. Now, because ERC claimed that it should pay less, and Swiss Re or the insurer should pay more, Swiss Re and the insurer still had a common interest, while ERC was adverse to them.

The insurer had shared with Swiss Re a claim file that contained privileged documents. The court found that the requested documents involved records “pertain[ing] to strategies regarding this lawsuit.”[12] The court noted that the privilege “applies not only to documents created after litigation has begun but also to documents created in anticipation of litigation.” The court ruled that Swiss Re and its insurer “share a common interest,” and the documents were shielded from production to ERC, but that if those common interests “hypothetically diverge at some point,” ERC could renew its motion.[13]

Case law in California also supports the continued protection of privileged documents shared with a reinsurer. In Great American Surplus Lines Insurance Co. v. Ace Oil Co., a federal court ruled the disclosure of attorney communications to a reinsurer did not waive the privilege because that transmittal was “reasonably necessary for the accomplishment of the purpose” for which the lawyer had originally been consulted.[14] The court reasoned that the reinsurer was ultimately responsible for the loss and that the legal communications at issue—though they were not originally addressed by the attorney to the reinsurer—were for the same ultimate purpose.

Privilege was also upheld in an Illinois case, Artra 524(g) Asbestos Trust v. Transport Insurance Co. There, the court found that the reinsurer and the insurer shared a common interest in much the same way as an insurer and insured. The court was also persuaded that if there was no finding of a common interest, the insurer and reinsurer could not fully discuss strategy in the coverage litigation.[15]

What This Means for Insurers and Reinsurers

Despite the broad audit rights permitted to reinsurers under most access-to-records clauses in reinsurance contracts, courts and arbitration panels (the latter of which resolve most reinsurance disputes) have found that insurers are within their rights to withhold privileged materials from reinsurers, particularly where such disclosure could destroy the privilege. For example, a New York appellate court ruled that the reinsurer’s access rights do not trump the insurer’s privilege rights.[16] When the insurer refused to turn over its communications with counsel on an underlying claim, the reinsurer refused to pay, and the appellate court reversed the trial court’s ruling in favor of the reinsurer.[17]

Similarly, a Massachusetts appellate court recently affirmed the confirmation of an arbitration award that denied the reinsurer access to protected communications.[18] Of course, the confirmation of arbitration awards is a routine procedure that does not indicate how a court may decide the issue, but this decision sheds rare light on how at least one reinsurance arbitration panel made its decision.

Rather than fight its reinsurer and risk its business relationship, though, an insurer may decide for business reasons to share privileged materials with its reinsurer. It also may legitimately want to involve its reinsurer in its litigation strategy. In such cases, the best practice is to document that the parties share a legal interest and that the parties are disclosing those materials in furtherance of that interest.

When the Shoe’s on the Other Foot

Now let us turn to a different, though related, situation. As described above, reinsurers routinely audit insurers. We have discussed what may happen in underlying coverage litigation if the insurer shares privileged material with a reinsurer, but what if there is a dispute between the reinsurer and the insurer? Can the insurer access the reinsurer’s internal analysis?

In reinsurance disputes, insurers invariably request in discovery the production of the reinsurer’s audit materials. Insurers typically seek not just draft and final versions of audit reports, but also the reinsurer’s correspondence with auditors and the auditors’ notes. Insurers hope to use that documentation to poke holes in the auditors’ findings and the reinsurer’s arguments. Because reinsurance disputes usually are resolved in private arbitration, not much has been written about whether those materials are protected.

A Recent Decision on Work Product

As readers of this article are likely aware, federal law governs the application of the work-product doctrine, which provides that documents prepared by or for a party in anticipation of litigation are ordinarily not discoverable.[19] It does not require that the documents at issue be prepared at counsel’s request—only that they be prepared because of the prospect of litigation.

A new opinion from the Southern District of New York provides a road map for when a reinsurer’s audit materials should be considered work product and thus remain shielded from discovery—and when those audit materials are instead rightly considered discoverable.[20] Arbitration panels that are inclined to take cues from the judiciary on the proper scope of discovery and the work-product doctrine may find the court’s rationale compelling.

In 2014, reinsurer AmTrust became concerned about the fees charged by its third-party administrator and sought counsel from an outside law firm regarding its insurer Safebuilt’s failure to reimburse AmTrust for those costs. Subsequently, AmTrust retained the audit firm Alan Gray to conduct a comprehensive review of the issue. Following the audit, AmTrust reached an accommodation with the third-party administrator but sued Safebuilt for not reimbursing AmTrust for the fees at issue.

In the litigation, Safebuilt sought the “work product and related material” of Alan Gray, arguing that the auditor’s material was discoverable because Alan Gray was not a law firm and there was no evidence that AmTrust’s counsel had been involved in Alan Gray’s retention.

In response, AmTrust argued that at the time it retained Alan Gray, it had already begun consulting with outside counsel regarding its potential remedies and had determined that it needed to retain an auditor to investigate the amount of fees at issue. It also claimed that its counsel had participated in the decision to retain Alan Gray and that the audit firm’s work was done for counsel’s benefit. Although the court found this representation consistent with the evidence, “for the sake of argument,” it assumed that AmTrust’s counsel did not participate in the decision to hire Alan Gray.[21]

Safebuilt argued that the auditor’s work was actually an ordinary “business audit” and used the fact that AmTrust and the third-party administrator reached an accommodation as evidence that this “business audit” was not related to any anticipated dispute with Safebuilt. Rejecting the argument, the court reasoned that even if there had been a business purpose to the audit, that did not preclude a finding that the audit had a dual purpose—both for business and litigious reasons. The court concluded that a document created in anticipation of litigation does not lose its work-product protection when the document is also used to assist with a business decision.

Ultimately, the court found that AmTrust hired Alan Gray “because of the prospect of litigation.”[22] Indeed, contemporaneous communications indicated that an AmTrust executive predicted that any dispute with Safebuilt would turn on the legitimacy of the third-party administrator’s billing practices, which were the subject of the Alan Gray audit.

Even after the court’s finding that the work-product protection applied, AmTrust faced one final hurdle before defeating Safebuilt’s motion to compel the production of the audit materials. As noted above, documents protected by the work-product doctrine are ordinarily not discoverable. The exception is when the party seeking discovery can demonstrate a “substantial need” for the materials and that the party cannot obtain, without undue hardship, their substantial equivalent by other means.[23] Here, because Safebuilt also had access to the same underlying data used by Alan Gray, Safebuilt could not show a substantial need for Alan Gray’s audit work. The court noted that Safebuilt could have (and had) hired its own expert to analyze the data used by Alan Gray.[24]

Thus, finding the reinsurance audit materials protected by the work-product doctrine and no substantial need for the production of the materials, the court denied the insurer’s motion to compel.[25]

The Effect of the AmTrust Decision

Courts and arbitration panels that follow the AmTrust decision should therefore find that documentation regarding a reinsurance audit that takes place in anticipation of litigation is protected from discovery. Relevant factors to this analysis would include the timing of the hiring of outside counsel, the role of counsel or litigation strategy in the decision to audit, and any other evidence that the reinsurer was eyeing the likelihood of a dispute at the time the auditor was retained. On the other hand, if the auditor would have been retained regardless of litigation as part of a regular or routine audit for business purposes, the subsequent use of the audit findings in a later dispute would not retroactively shield the audit materials under the umbrella of the work-product doctrine.


From jurisdiction to jurisdiction, there is not universal clarity on how the common interest doctrine may be applied to the relationship between reinsurers and insurers. Insurers that share privileged communications with reinsurers should document the parties’ joint legal interest. Where no common interest exists, privileged communications and otherwise protected documents that are shared with reinsurers may suddenly become discoverable in coverage litigation when requested by an alert plaintiff’s counsel.

Meanwhile, in reinsurance disputes, reinsurers similarly should carefully document the role of counsel and litigation strategy in the engagement of auditors if they want to protect auditors’ notes and findings from their insurers.

Keywords: litigation, insurance, coverage, reinsurance, privilege, audit, work product, common interest doctrine

Peter Steffen is a partner with Freeborn & Peters LLP in Chicago.



[1] Developers Sur. & Indem. Co. v. Harding Vill., Ltd., No. 06-21267, 2007 U.S. Dist. LEXIS 49994, at *5 (S.D. Fla. 2007).

[2] Visual Scene, Inc. v. Pilkington Bros., plc., 508 So. 2d 437, 440 (Fla. Ct. App. 1987).

[3] Infinite Energy, Inc. v. Econnergy Energy Co., No. 1:06cv124, 2008 U.S. Dist. LEXIS 63493, at *5 (N.D. Fla. 2008).

[4] Allendale Mut. Ins. Co. v. Bull Data Sys., 152 F.R.D. 132, 140 (N.D. Ill. 1993).

[5] Allendale Mutual, 152 F.R.D. at 141.

[6] Mass. Bay Ins. Co. v. Stamm, 700 N.Y.S.2d 707 (N.Y. App. Div. 2000).

[7] McLean v. Cont’l Cas. Co., No. 95 CIV 10415, 1996 U.S. Dist. LEXIS 17503, at *2–3 (S.D.N.Y. Nov. 25, 1996) (finding that “defendants’ production of these documents to its reinsurer . . . waived any privilege that may have been applicable”).

[8] Progressive Cas. Ins. Co. v. Fed. Deposit Ins. Corp., 49 F. Supp. 3d 545 (N.D. Iowa 2014).

[9] Progressive Cas., 49 F. Supp. 3d at 558.

[10] Bancinsure, Inc. v. McCaffree, No. 12-cv-2110, 2013 U.S. Dist. LEXIS 152804 (D. Kan. Oct. 24, 2013).

[11] Emp’r Reinsurance Corp. v. Laurier Indem. Co., No. 8:03-cv-1650, 2006 U.S. Dist. LEXIS 10943 (M.D. Fla. 2006).

[12] Emp'r Reinsurance, 2006 U.S. Dist. LEXIS 10943, at *5.

[13] Emp'r Reinsurance, 2006 U.S. Dist. LEXIS 10943, at *6.

[14] Great Am. Surplus Lines Ins. Co. v. Ace Oil Co., 120 F.R.D. 533, 538 (E.D. Cal. 1988).

[15] Artra 524(g) Asbestos Trust v. Transport Ins. Co., No. 09 C 458, 2011 U.S. Dist. LEXIS 110272, at *46 (N.D. Ill. Sept. 28, 2011).

[16] Gulf Ins. Co. v Transatlantic Reinsurance Co., 788 N.Y.S.2d 44, 45 (N.Y. App. Div. 2004).

[17] Gulf Ins., 788 N.Y.S.2d at 45–46.

[18] Liberty Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 87 Mass. App. Ct. 1127 (2015).

[19] Fed. R. Civ. P. 26(b)(3)(A).

[20] AmTrust N. Am., Inc. v. Safebuilt Ins. Servs., No. 14-CV-9494, 2016 U.S. Dist. LEXIS 75906 (S.D.N.Y. June 10, 2016).

[21] AmTrust, 2016 U.S. Dist. LEXIS 75906, at *10.

[22] AmTrust, 2016 U.S. Dist. LEXIS 75906, at *11.

[23] Fed. R. Civ. P. 26(b)(3)(A)(ii).

[24] AmTrust, 2016 U.S. Dist. LEXIS 75906, at *15–16.

[25] AmTrust, 2016 U.S. Dist. LEXIS 75906, at *17.

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