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The California Supreme Court affirmed the appellate court and held Code of Civil Procedure section 2017.210 does not authorize pretrial discovery of a nonparty liability insurer's reinsurance agreements for purposes of facilitating settlement of an underlying tort action.
The Roman Catholic Archdiocese of San Diego ("Archdiocese") was the principal defendant in an action brought by approximately 140 persons for alleged childhood abuse by priests. The trial court issued a case management order directing the Archdiocese to turn over copies of all insurance policies that might provide coverage for plaintiffs' claims. The Archdiocese complied and produced copies of its insurance policies. Plaintiffs contended this information was insufficient. According to plaintiffs, they also needed to know whether the Archdiocese's insurer was financially sound enough to cover its policy obligations. As a result, plaintiffs served deposition subpoenas to the Archdiocese's insurer seeking broad categories of financial documents, including a request for all writings reflecting the total amount of funds available from reinsurance to satisfy the sexual abuse claims.
The insurer moved to quash the subpoena, arguing the subpoenas were not reasonably calculated to lead to the discovery of admissible evidence and were therefore beyond the permissible scope of discovery. The motion was denied. The insurer then sought a writ of mandate from the Court of Appeal. The Court of Appeal granted relief, concluding the documents and information sought were not discoverable under either the general statutory discovery provision (§2017.010) or the specific provision authorizing limited discovery of insurance information as a matter of right (§2017.210). The Court found §2017.210 was only intended to reach a defendant's liability insurance, not that insurer's reinsurance agreements.
The California Supreme Court affirmed the appellate decision. The Court acknowledged that section 2017.210 creates a statutory exception that allows limited discovery of a defendant's liability insurance coverage as a matter of right, without the need for a threshold showing of relevancy and admissibility. However, the Court noted the statute does have limitations.
First, the court distinguished reinsurance from liability insurance. Under Insurance Code section 11580, every liability policy must expressly state that a plaintiff who obtains a judgment against a defendant insured is then entitled to bring an action directly against the insured's insurer. The injured plaintiff becomes a third party beneficiary of the defendant's liability insurance policy. Thus, the plaintiff has a discoverable interest in the liability policy. Section 11580 does not list reinsurance as coming within its purview. Further, reinsurance is procured by an insurer to insure against loss or liability by reason of the risk of loss assumed in the liability insurance. Reinsurance is a contract of indemnity against liability, not merely against damage, and insured/policyholder is not a party to the reinsurance contract. Under Insurance Code section 623, an "original insured has no interest in a contact of reinsurance."
While the Court noted reinsurance arguably falls within the language of section 2017.210, the Court found the statute ambiguous on this point. The term "any insurance carrier" in section 2017.210 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." A liability carrier may become contractually liable when a final judgment is entered in an underlying action (i.e., the time for appeal has run). A reinsurance carrier, on the other hand, is not directly liable to satisfy a judgment entered in the action and makes no payments to the insured defendant or the successful plaintiff.
Next, the Court examined the legislative history regarding the drafting of section 2017.210. The Court noted this history uniformly reflects an intent to authorize limited discovery of liability insurance coverage, but evinces no similar intent with respect to a nonparty insurer's reinsurance agreements. Also, under common law prior to the enactment of section 2017.210, plaintiffs were afforded limited discovery of a defendant's liability insurance coverage as a result of a plaintiff's right, under Insurance Code section 11580, to proceed directly against the liability insurer. No such right is afforded with respect to reinsurance. The Court stated that as a general rule, statutes should not be interpreted to alter the common law.
In sum, the court held a nonparty insurer's reinsurance contracts are not discoverable absent special circumstances. Such circumstances may include when a liability insurer is "fronting" for a reinsurer who is the defacto primary insurer or when a reinsurer is a party to litigation with another insurer.
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This opinion is not final. A rehearing may be granted or other petition filed. Should either of these events take place, the opinion would be unavailable for use as authority in other cases.
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