Carrier Must Produce Its Underwriting File in Subro Litigation

Our last two newsletters discussed a Travelers Insurance subrogation action, involving an allegedly defective Daimler truck which caused a fire.  [1]    This month, we’ll talk about a third issue which the Court dealt with in that litigation. 

Daimler demanded that Travelers turn over its underwriting file.   An “underwriting file” is different from a “claims file.”   When a new customer applies for insurance, he/she usually submits an application.  The carrier may or may not obtain an inspection report and photographs of the property to be insured.  The carrier then decides whether or not it wants to insure the risk.  The material generated during this period is considered to be the “underwriting file,” although in my experience most carriers don’t actually maintain a written “file” in a file drawer.  Today, most records are electronically-stored, including the insured’s application.

Daimler served a 30(b)(6) demand that Travelers produce a representative to answer questions about their subrogation claim.  Travelers resisted, and filed a motion to prevent this deposition from occurring.  Travelers’ attorneys argued that no one at Travelers had direct knowledge regarding the facts leading up to the fire and that any information regarding the cause of the fire was given to Travelers from its attorneys and therefore was privileged.  Further, Travelers argued that a deposition of its representative was unnecessary since interrogatory responses and the testimony of the insureds/subrogors already provided sufficient information regarding the fire.

A “claims file” is what is generated after an insured submits a specific claim.  The material in the “claims file” relates specifically to the loss and what it costs to restore the insured to his/her pre-loss condition.  In this specific case, the “claims file” relates to the fire that was allegedly caused by the Daimler truck and damaged the insured’s house.

Many times the “underwriting file” is generated years prior to the “claims file.”  For example, suppose an insured requests insurance in 1995, but doesn’t submit a fire claim until 2015.  In such a case, the underwriting file would have been generated 20 years prior to the loss and would contain no mention of the 2015 fire loss.

Travelers argued the “underwriting file” had nothing to do with the fire, was irrelevant, and, therefore, Daimler was not entitled to a copy of it.   Daimler conceded there were no underwriting issues with this loss.  Travelers argued that the valuation, adjustment, and payment of claims at issue were governed by the terms of the policy, not by the underwriting of the policy. [2]    Daimler argued that the underwriting file was not privileged and that it might provide an evaluation of the condition of the premises being insured and the value of the property at the time it was first insured.  The Court ruled mostly in Daimler’s favor.  Travelers was instructed to review the underwriting file and produce any “relevant” documents to Daimler.  Should Travelers still desire to withhold underwriting documents based on a relevance objection, Travelers’ attorneys were to prepare a detailed list of the records it was withholding and meet and discuss the matter with Daimler’s attorneys to try to resolve, and, if necessary, file another motion.

Bottom Line: The scope of discovery in federal and New York state practice is extremely broad.  Rarely do the courts allow a party to withhold documents based on a “relevance” objection. Sometimes in subrogation, the defense wants to see the underwriting file to determine if perhaps the carrier made a mistake and never should have insured the premises in the first place.  The reasoning is that if the carrier shouldn’t have ever insured the property, then the subrogation never would have occurred because the carrier never would have been on the risk.  This is a tough sell by the defense, and I’ve never seen this strategy work.   To the extent the underwriting file contains photographs of the loss pre-fire and any information about the value of the premises pre-fire, the courts will, in my opinion, require that the underwriting file be disclosed to the defense.  Sometimes the more I fight to protect something from disclosure, the more the defense thinks there must be a “smoking gun” that I am trying to protect and the defense becomes more adamant that I disclose it.  Unless something is privileged, if it relates to the loss or an evaluation of the loss, it must and should be disclosed.  If you are concerned that sensitive information may be leaked to third-parties, you can require that a stipulated confidentiality order be put in place which orders that this information must be kept confidential in the confines of the litigation.  Have a great summer.

[1] Travelers v. Daimler Trucks et al, 2015 U.S. Dist. LEXIS 48760, SDNY Civil Action No.: 14-CV-1889 (April 14, 2015)
[2] The Court decision did not say how old the underwriting file was.