Archive FilesLong-tail coverage disputes often involve multiple policies issued over multiple policy periods over multiple layers of insurance. Sometimes the potential relevant policies go back decades or more. Locating these ancient policies is an enormous task. Locating the placing, underwriting and claims files that go along with these policies is even more difficult. Compound all of this difficulty with insurance placed in the London Market prior to 1992.

To many, the workings of the London Insurance Market is a mystery, especially when discussing the marketplace known as Lloyd’s of London. Unlike the manner in which insurance was produced and underwritten in the US by domestic insurers, the London Market, and especially Lloyd’s, had its own, unique, way of doing business. In a recent discovery dispute, a US Magistrate Judge, on a motion to compel discovery, had to address many of these issues.

In Certain Underwriters at Lloyd’s v. Nat’l Railroad Passenger Corp., No. 14-cv-4717 (FB), 2016 U.S. Dist. LEXIS 165967 (E.D.N.Y. Nov. 30, 2016), the insured sought production of documents from every insurer concerning the underwriting of excess insurance policies in the London Market. The underlying coverage dispute was over whether the insurers had to reimburse the insured for the costs incurred in cleaning up environmental waste found on the insured’s property. The insurers had produced documents from all the available lead underwriters and syndicate managers, but the insured wanted all documents concerning the policies from all insurers in the following market as well.

The Magistrate Judge granted in limited part the insured’s motion to compel discovery, but mainly denied the motion. Based on the decision, the reason for the limited grant was because the insurers conceded that some limited additional discovery to satisfy the insured’s concerns was appropriate. The court accepted the insurers’ offer to allow the insured to select 10 representatives of the following market to search for and produce underwriting and claim files. The court found that to be a reasonable resolution of the dispute as it would allow the insured to test its theory that the files of the following market contain non-duplicative documents.

The opinion contains an excellent summary of how both the Company Market and the Lloyd’s Market worked during the relevant time period.  The court had to address this discovery request in the context of the proportionality rules now embedded in FRCP 26(b). The court held that the insured’s contention, that it was entitled to production of the files of all the insurers regardless of whether there were other sources of information that were more convenient, less burdensome and more likely to have responsive documents, was contrary to the language of Rule 26 and the cases the court cited in the opinion.

Focusing on the unique insurance markets involved, the court rejected any blanket prohibition on discovery from the files of the following market, but noted that leader-only discovery may be appropriate in some circumstances. When dealing with the London and Lloyd’s subscription markets, the court stated that it must undertake a fact-intensive inquiry that focuses on the nature and extent of the discovery produced from other sources and the need for searches of the files of the following market, and at the same time taking into account the operation of the London Insurance Market.

That is exactly what the Magistrate Judge did in describing the sworn evidence presented by the insurers. The court noted that the insurers demonstrated that the most likely entities to possess underwriting and claims information are the London brokers, assigned counsel, the assigned leads and overall leads and perhaps, to a lesser extent, the syndicate and company leads. The insurers also showed that searching the archives of 77 following market syndicates and 46 following companies would be burdensome and highly unlikely to yield any non-duplicative documents.

Moreover, according to the court, the insured failed to rebut the insurers’ showing with evidence that the following market were likely to have any documents not already produced from the overall leads and other sources. Nor did the insured contend that it or its broker had any direct communications with the following market.

This decision is instructive on how the London subscription market worked and clarifies what many already knew, which is that syndicates and companies in the London Market kept very few records and the following markets would not have anything more than the leads.