North River Ins. v. Philadelphia Reinsurance

• Decision Date: 12 August 1992
• Docket Number: Civ. A. No. 91-1323.
• Citation: 797 F. Supp. 363
• Parties: The NORTH RIVER INSURANCE COMPANY, Plaintiff, v. PHILADELPHIA REINSURANCE CORPORATION and Cigna Reinsurance Company, individually and as successor to INA Reinsurance Company, Defendants.
• Court: U.S. District Court — District of New Jersey

797 F. Supp. 363

The NORTH RIVER INSURANCE COMPANY, Plaintiff, v. PHILADELPHIA REINSURANCE CORPORATION and Cigna Reinsurance Company, individually and as successor to INA Reinsurance Company, Defendants.

Civ. A. No. 91-1323.

United States District Court, D. New Jersey.

July 21, 1992.

As Amended August 12, 1992.

COPYRIGHT MATERIAL OMITTED

Dennis G. Jacobs, Brian G. Snover, Robert R. Pollowitz, Simpson, Thatcher & Bartlett, New York City, for plaintiff.

Thomas A. Allen, Ellen K. Burrows, Julia M. Melendez, White & Williams, Westmont, N.J., for defendant CIGNA Reinsurance.

Paul Kanefsky, Buchalter, Nemer, Fields & Younger, New York City, for defendant Philadelphia Reinsurance.

OPINION

WOLIN, District Judge.

This is an appeal by CIGNA Reinsurance Company ("CIGNA Re") pursuant to Rule 40D4(a) of the General Rules of the United States District Court for the District of New Jersey. CIGNA Re seeks reversal of that part of the Opinion and Order of Magistrate Judge Pisano filed April 6, 1992, by which Judge Pisano denied CIGNA Re's motion to compel discovery of attorney-client documents created in connection with Alternative Dispute Resolution ("ADR") proceedings between the North River Insurance Company ("North River") and Owens-Corning Fiberglas Corporation ("OCF"). For the reasons explained below, the Court will deny the appeal and affirm Judge Pisano's decision.

BACKGROUND

This action is a reinsurance coverage dispute between North River, the reinsured, and CIGNA Re, the reinsurer. North River has alleged that under a reinsurance agreement, CIGNA Re must indemnify North River for sums paid to OCF for costs of defense paid in connection with claims made pursuant to excess policies of insurance. One issue on the motion before Judge Pisano was whether certain attorney-client documents, related to North River's obligation to pay defense costs to OCF, are discoverable.

Thousands of products liability actions were filed against OCF in the 1970s and 1980s arising from its sales of asbestos-containing products. In 1985, North River, OCF's excess insurer, along with a number of other insurers of asbestos manufacturers, entered into the "Wellington Agreement" in an effort to simplify and reduce the costs of resolving insurance coverage claims arising from sales of asbestos. That agreement provided for the resolution of claims through ADR. It also created a presumption that issuers of policies would pay defense costs unless the policies expressly provided to the contrary. (Wellington Agreement Section 11). To contest the presumption to pay defense costs, the Wellington Agreement required compliance with a strict scheduling procedure. (Wellington Agreement, Appendix D).

Pursuant to the Wellington Agreement, OCF and North River engaged in the arbitration of OCF's claims against North River. Following extensive discovery and a six-day evidentiary hearing before a retired federal judge acting as arbitrator, a decision was issued in July 1989 that required North River to pay OCF's defense costs on covered asbestos claims. In his decision, the arbitrator determined that North River was obligated to pay defense costs on two alternative grounds: (1) it had waived its right to contest payment of defense costs by its failure to comply with the scheduling procedure; and (2) "Within the meaning of the Wellington Agreement, the policy between North River and OCF does not expressly provide that allocated expenses i.e., defense costs are not payable", and hence must be paid. See Memorandum Opinion and Judgment dated July 26, 1989, annexed as Exhibit A to Exhibit 1 of Defendant's Appendix on Appeal. North River commenced an appeal of the ADR decision, but then abandoned the appeal. It soon thereafter began to submit claims to CIGNA Re for a part of the defense costs it paid to OCF.

North River asserts in this action that a portion of the costs of defense (approximately $30 million) are covered under the reinsurance agreement between itself and CIGNA Re. CIGNA Re contends that costs of defense were not covered under the excess policy between North River and OCF, and thus are not covered under the reinsurance agreement. It contends that any obligation incurred by North River to pay such costs was due to its failure to preserve its rights under the Wellington Agreement, and may not be recovered from it.

The dispute involved on this appeal centers on whether attorney-client communications between North River and its counsel during the ADR proceeding are discoverable. In particular, CIGNA Re seeks to discover documents that bear on North River's decision to abandon its appeal of the arbitrator's decision holding North River responsible for payment of defense costs. North River contends that none of the communications between it and its counsel are discoverable. CIGNA Re contends on several grounds that the documents may be discovered. The Court will address each argument separately.

DISCUSSION

A. Standard of Review

A magistrate's adjudication of a non-dispositive motion will be set aside only if the order is found to be clearly erroneous or contrary to law. Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1113 (3d Cir. 1986), cert. denied, 484 U.S. 976, 108 S.Ct. 487, 98 L.Ed.2d 485 (1987) (citing 28 U.S.C. § 636(b)(1)(A)); see also Fed.R.Civ.P. 72(a); Rule 40 D(4) of the General Rules for the U.S.Dist.Ct. for the Dist. of N.J. ("the local rules"). A finding is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948).

B. The Common Interest Doctrine

CIGNA Re contends that it is entitled to discover the attorney-client communications in issue under the "common interest" doctrine. The "common interest" doctrine applies when multiple persons are represented by the same attorney. In that situation, communications made to the shared attorney to establish a defense strategy remain privileged as against the rest of the world. See United States v. Moscony, 927 F.2d 742, 753 (3d Cir.1991), cert. denied, ___ U.S. ___, 111 S.Ct. 2812, 115 L.Ed.2d 984 (1991); In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 126 (3d Cir.1986). The clients may not, however, later assert the privilege against each other after their interests become adverse. See McCormick on Evidence § 91 at 219 (3d ed. 1984); 8 J. Wigmore on Evidence § 2312 at 605-06 (hereafter "Wigmore"); Longo v. American Policyholders Ins. Co., 181 N.J.Super. 87, 91-92, 436 A.2d 577 (Law Div.1981) (holding that communications between insurer and shared counsel in underlying action must be produced to insured); Waste Management, Inc. v. Int'l Surplus Lines Ins. Co., 144 Ill.2d 178, 161 Ill.Dec. 774, 780, 579 N.E.2d 322, 328 (1991); Independent Petrochemical Corp. v. Aetna Cas. and Sur. Co., 654 F.Supp. 1334, 1365-66 (D.D.C.1986) (applying common interest doctrine to compel production of insured's communications with counsel related to underlying claim). The classic statement of this principle is by Professor Wigmore, who stated:

A communication by A to X as the common attorney of A and B, who afterwards become party opponents, is not privileged as between A and B since there was no secrecy between them at the time of communication.

Wigmore § 2312 at 605-06.

The common interest doctrine has been recognized in the insured/insurer context when counsel has been retained or paid for by the insurer, and allows either party to obtain attorney-client communications related to the underlying facts giving rise to the claim, because the interests of the insured and insurer in defeating the third-party claim against the insured are so close that "no reasonable expectations of confidentiality" is said to exist. Carey-Canada, Inc. v. Aetna Cas. & Sur. Co., 118 F.R.D. 250, 251 (D.D.C.1987). Communications that relate to an issue of coverage, however, are not discoverable. Waste Management, 161 Ill.Dec. at 788, 579 N.E.2d at 336; Independent Petrochemical, 654 F.Supp. at 1365. This distinction is recognized because the interests of the insurer and its insured with respect to the issue of coverage are always adverse.

The relationship between CIGNA Re and North River does not fall within the confines of the classic common interest doctrine, because North River retained its own counsel wholly independent from CIGNA Re, and CIGNA Re had no input in any respect into the relationship between North River and its counsel, nor otherwise controlled that relationship. CIGNA Re relies primarily on the Illinois Supreme Court's decision in Waste Management to support its argument that production of the attorney-client documents is required under the common interest doctrine.

Although much law exists that addresses the application of the common interest doctrine as it applies between an insured and insurer that are adverse to each other, not one case, published or unpublished, has been cited to the Court that addresses application of the doctrine as between adverse reinsureds and reinsurers. CIGNA Re contends that the common interest doctrine as developed in the insured/insurer context is highly analogous to the reinsured/reinsurer context, and should therefore be fully applied. North River, however, asserts that the "duty to defend", present in the direct insurance context but absent in the reinsurance context, is the linchpin of the common interest doctrine, and should therefore preclude application of the doctrine in the reinsurance context. The Court finds that it need not determine whether differences between reinsurance and direct insurance require a different application of the common interest doctrine, because it concludes that, even under the doctrine as developed in the direct insurance context, the documents in issue are not discoverable.

The ...