Jackson Family Wines, Inc. v. Zurich American Insurance Company

Background

Jackson Family Wines, Inc. brought a breach-of-insurance-contract and bad-faith action against Zurich American Insurance Company. Jackson alleged that it bought three insurance policies from Zurich providing a total of $1.1 billion in coverage and suffered property and other damage from four wildfires during three policy periods. It submitted four fire-related claims totaling more than $430 million and alleged that Zurich deliberately delayed the claims to avoid paying coverage.

Jackson asserted claims for breach of the three insurance agreements, breach of the implied covenant of good faith and fair dealing, and declaratory relief. The parties disputed coverage for certain destroyed structures and removal of fire-damaged trees.

Discovery Request

Jackson moved to compel a response to Request for Production No. 26. Jackson narrowed that request to “communications between Zurich and any reinsurer relating to JFW’s four fire claims.” Zurich objected based on relevance and argued that the communications contained confidential financial and other information.

Court’s Analysis

The court applied Federal Rule of Civil Procedure 26(b)(1), which permits discovery of nonprivileged information relevant to a claim or defense and proportional to the needs of the case. The court explained that information can be discoverable even if it would not be admissible as evidence at trial.

The court relied on authority recognizing that communications between an insurer and its reinsurers may be relevant in a bad-faith action when they concern liability, exposure, coverage issues, claim valuation, or the insurer’s investigation. The court concluded that the requested communications could be probative of Zurich’s state of mind, including its assessment of its obligations, valuation of the losses, investigation of the claims, and coverage positions. The communications could also bear on the parties’ coverage dispute.

The court rejected Zurich’s confidentiality objection because Zurich did not explain why the existing protective order was insufficient to address its concerns. The court also rejected Zurich’s argument that the requested information was immaterial to interpreting the policy terms, explaining that discoverability does not require admissibility.

Disposition

The court granted Jackson’s motion to compel. Zurich was ordered, within seven days of the order, to produce responsive communications withheld solely on the basis of a reinsurance-related objection, including the asserted “confidentiality inherent to reinsurance.” The discovery could be produced under the protective order. Zurich was also ordered to provide an amended privilege log in accordance with the court’s discovery procedures order.