In Catholic Mutual Relief Society et al. v. Superior Court of Los Angeles County, Case No. S134545 (August 27, 2007), the Supreme Court of California held that the Code of Civil Procedure § 2017.210 does not require a nonparty liability insurer to furnish discovery of all reinsurance agreements entered into with nonparty reinsurers. In so holding, the Court affirmed a prior decision of the Court of Appeal.
The case involved a suit brought by approximately 140 persons against the Roman Catholic Archdiocese of San Diego (“Church”) and the San Bernardino Archdiocese. Id. Petitioner Catholic Mutual Relief Society is a nonprofit corporation that administers a self-insurance fund for more than three hundred archdioceses in the United States and Canada through its wholly owned subsidiary, petitioner Catholic Relief Insurance Company of America. Id. Pursuant to a stipulated order regarding settlement and mediation proceedings, the trial court issued an initial case management order, directing the Church to turn over copies of all insurance policies that might provide coverage for the claims. Slip Op. at 2. After the Church produced copies of its liability insurance policies issued by petitioners, plaintiffs complained that this information was insufficient. Id. Plaintiffs contended that they also needed to know whether petitioners were financially sound enough to cover the policy obligations. Id. at 3. The settlement judge then issued an order permitting the plaintiffs to serve deposition subpoenas on the petitioners seeking broad categories of financial documents, including all writings reflecting the total amount of funds available from reinsurance to satisfy any defense expenses or indemnify losses in association with the claims. Id. at 3-4. “The information was sought for the exclusive purpose of informing and facilitating pretrial settlement” of the claims against the Church. Id. at 6.
Petitioners moved to quash the subpoenas on the basis that they were not reasonably calculated to lead to the discovery of admissible evidence and therefore were beyond the permissible scope of discovery. Catholic Mutual Relief Society, Slip Op. at 4. The settlement judge denied the motions, finding that the subpoena requests were “‘clearly relevant and discoverable’ to inform and facilitate settlement.” Id. at 5.
Petitioners sought a writ of mandate from the Court of Appeal to vacate the settlement judge’s order. Id. The Court of Appeal granted relief, concluding the information sought was not discoverable under either the general statutory discovery provision or the specific provision authorizing limited discovery of insurance information as a matter of right. Id. The Court of Appeal vacated the settlement judge’s order, finding that (1) none of the broad financial information sought from the petitioners was relevant or discoverable on a showing of good cause and (2) “section [2017.210] was intended to reach only a defendant’s [direct] insurer, not that insurer’s reinsurance agreements.” Id. at 5-6. The Supreme Court of California granted review on the limited issue of whether section 2017.210, which authorizes limited discovery of liability insurance coverage as a matter of right, likewise authorizes discovery of the nonparty liability insurer’s reinsurance agreements for purposes of facilitating pretrial settlement. Id. at 6.
Although insurance information is inadmissible to prove negligence or other wrongdoing, Code of Civil Procedure § 2017.210 creates a statutory exception that provides, in pertinent part,
[a] party may obtain discovery of the existence and contents of any agreement under which any insurance carrier may be liable to satisfy in whole or in part a judgment that may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment. This discovery may include the identity of the carrier and the nature and limits of the coverage. A party may also obtain discovery as to whether that insurance carrier is disputing the agreement’s coverage of the claim involved in the action, but not as to the nature and substance of that dispute….
The Supreme Court acknowledged that reinsurance arguably falls within the language of the statute “because it is an agreement whereby the reinsurer agrees ‘to indemnify or reimburse for payments made to satisfy the judgment.’” Catholic Mutual Relief Society, Slip Op. at 12. Nonetheless, considering the language of the statute as a whole, the Court found the statute ambiguous on the point. Id. Contributing to this ambiguity, the term “any insurance carrier” is qualified by the circumstance that the carrier “may be liable to satisfy in whole or in part a judgment that may be entered in the action.” Id. The Court noted that “the liability insurer is directly liable to satisfy the judgment in the underlying action with respect to the parties, whereas a reinsurer is only derivatively liable to ‘indemnify or reimburse’ the liability insurer for payments made in satisfaction of the underlying judgment.” Id. at 13. As a result, the Court further found the use of the term “satisfy the judgment” ambiguous in this regard. Id.
Due to the numerous ambiguities in the statute, the Court turned to the principles of statutory interpretation to determine the intent of the statute with regard to reinsurance. The Court found that “[n]othing in the language or legislative history of former section 2017(b) (now § 2017.210) discloses an intention to extend the scope of the limited discovery right beyond primary liability insurance policies to reinsurance agreements.” Id. at 16.
The availability and extent of a defendant’s liability insurance coverage is important information that plaintiffs are clearly entitled to discover under section 2017.210. ‘The presence or absence of liability insurance is frequently the controlling factor in determining the manner in which a case is prepared for trial.’ A nonparty insurer’s reinsurance information, in contrast, would not be of any relevance to plaintiffs in the vast majority of cases.
Id. (internal citations omitted). “The amounts of liability insurance policy limits directly available to respond to the underlying judgment are not increased by the existence of a liability insurer’s reinsurance agreements.” Id.
Ultimately, the Court held that:
[t]he language of section 2017.210 allows for discovery of the “existence and contents” of liability insurance policies that may be available to satisfy a judgment, not the assets of the insurance companies providing the insurance. Reinsurance is an asset of a liability insurer, just as capital reserves are, and nothing in prior case law, legislative history, or the statutory language suggests that either the common law right to discover insurance information or section 2017.210 authorize broad discovery of the financial health of the liability insurer or its ability to meet its contractual obligations under its policies.
Id. at 17. As a result, the petitioners were not required to furnish plaintiffs with all reinsurance agreements entered into with nonparty reinsurers.
J. Ben Vitale is an associate in the firm’s insurance and commercial litigation groups. Ben received his bachelor’s degree from the University of Florida and his law degree from Vanderbilt University.