Under many states’ insurance laws, the formation of companies or the issuance of policies require filing and often approval by the state insurance regulator. Additionally, every insurance company licensed in a state will come under a periodic examination during which information will be requested and collected by the insurance regulator and will result in an examination report produced on the findings of that examination about that insurance company. In litigation involving the creation of an insurance or reinsurance company, are examination reports and other communications with the insurance regulator subject to disclosure under the applicable discovery rules in federal court?

In a recent case, a New York federal court had to determine whether a state law that deemed certain communications with the insurance regulator confidential precluded discovery of those communications. AmTrust N. Am., Inc. v. Safebuilt Ins. Servs., Inc., No. 16-MC-169 (CM) (JLC), 16-MC-190 (CM) (JLC), 2016 U.S. Dist. LEXIS 64105 (S.D.N.Y. May 16, 2016). This case was a complicated dispute with allegations of fraud, mismanagement, and efforts to pierce the corporate veil concerning the creation and use of a protected cell company created by a captive reinsurance company as part of a reinsurance arrangement. Subpoenas were issued to obtain “all non-privileged documents, records and communications” with the insurance regulator concerning the captive’s protected cell company “specifically as it relates to cell formation, cell funding, cell merger, policy fees, reported premium, business plan approvals, business plan amendments, policy language approvals, and policy language amendments.”

In response to a subpoena, the reinsurer’s counsel produced an examination report and orders of supervision concerning the reinsurer. After production, the law firm sought to recover the documents as inadvertently produced. In holding that the documents were discoverable, the court concluded that the documents were not privileged under the relevant state statute. The court noted that other courts have largely declined to recognize an insurance-examination privilege. the court also interpreted the statute as protecting documents in the possession of the regulator and not the examined company. “The purpose of the statute, however, is not to provide a shield for examined companies to use in discovery, which is how defendants are attempting to use it here.”

Notably, the regulator was cooperative with the plaintiffs and answered all questions about these documents at a deposition. The regulator also declined to submit any formal administrative interpretation of the statute. Based on all of this, the court denied the motion to quash and enforced the subpoena.