Lead Opinion
INTRODUCTION
In this сase we must determine whether Code of Civil Procedure section 2017.210,
As will further be explained, there may be unusual circumstances in which a reinsurance agreement is functioning in the same way as a liability policy (“fronting” arrangement), or where the reinsurance agreement is itself the subject matter of the litigation at hand (e.g., coverage action between liability insurer and its reinsurer). In such instances, discovery of such agreements would be appropriate. In this matter, however, there is no evidence that any reinsurance agreements for which pretrial discovery was being sought fall within those narrow exceptions.
The judgment of the Court of Appeal, which interpreted section 2017.210 consistently with the views expressed herein, shall accordingly be affirmed.
FACTS AND PROCEDURAL BACKGROUND
The Roman Catholic Archdiocese of San Diego is the principal defendant in an action brought by approximately 140 persons (plaintiffs) for alleged childhood abuse by certain priests. Those cases, along with others involving the San Bernardino Archdiocese, are known collectively as Clergy Cases II, and were coordinated within the Los Angeles County Superior Court with claims against dioceses from other parts of California.
In September 2003, pursuant to a stipulated order regarding settlement and mediation proceedings, the trial court issued an initial case mаnagement order which, among other things, directed the Roman Catholic Archdiocese of San Diego (Church) to turn over copies of all insurance policies that might provide coverage for plaintiffs’ claims. Petitioner Catholic Mutual Relief
In compliance with the case management order, the Church produced copies of its liability insurance policies issued by petitioners. Plaintiffs contendеd this information was insufficient. According to plaintiffs, they also need to know whether petitioners were financially sound enough to cover their policy obligations. In April 2004, in an attempt to resolve the matter informally, the trial court allowed plaintiffs to serve on petitioners a series of “interrogatories” aimed at obtaining the desired information.
On Mаy 6, 2004, the settlement judge issued an order permitting plaintiffs to serve deposition subpoenas on petitioners in an attempt to secure the information requested by plaintiffs’ “interrogatories.” The subpoenas sought broad categories of financial documents, including a request for all writings reflecting the total amount of funds available from reinsurance “to satisfy any defense expenses or indemnify losses in connection with sexual abuse claims against the [Church].”
Petitioners sought a writ of mandate from the Court of Appeal to vacate the settlement judge’s order. 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 that “section [2017.210] was intended to reach only a defendant’s [direct] insurer, not that insurer’s reinsurance agreements.”
We granted review of the issue framed by plaintiffs as follows: “Whether the long-standing California rule that ‘has permitted discovery of the existence and extent of liability insurance’ (Laddon v. Superior Court (1959)
Plaintiffs sought broad pretrial discovery of financial information regarding the assets and overall financial health of petitioners’ insurance operations. Petitioners are not parties to the consolidated actions below. The information requested included total funds and reserves available to settle claims, satisfy judgments, and indemnify defense expenses in connection with sexual abuse claims brought against the Catholic Church and its numerous dioceses nationwide. The information was sought for the exclusive purpose of informing and facilitating pretrial settlement of the 140 such claims brought against the Roman Catholic Archdiocese of San Diego in the consolidated litigation.
In this state pretrial discovery in a civil action is governed by the Civil Discovery Act. (§ 2016.010 et seq. (former § 2016 et seq.).) As a general matter, information is discoverable if it is relevant to the subject matter of an action and, additionally, is either admissible in evidence or reasonably calculated to lead to the discovery of admissible evidence. (§ 2017.010.) The Court of Appeal concluded none of the broad financial information sought from these nonparty insurers
Evidence of a tort defendant’s liability insurance is generally unrelated to a party’s claims or defenses at trial; hence the common law rule has long been that such insurance coverage evidence is inadmissible at trial. (Laddon v. Superior Court, supra,
Section 2017.210 nonetheless creates a statutory exception that allows limited discovery of a defendant’s liability insurance coverage as a matter of
Plaintiffs argue that the plain language of section 2017.210 authorizes discovery of reinsurance agreements. They point out that the section specifically permits discovery of “any agreement under which any insurance carrier” may be liable to satisfy a judgment “or to indemnify or reimburse for payments made to satisfy the judgment.” (§ 2017.210.)
Before examining the controlling language of section 2017.210, it will be helpful to briefly consider some fundamental differences between liability insurance and reinsurance.
As defined by statute, “Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” (Ins. Code, § 22.) The purpose of liability insurance is to protect the insured against losses from “contingent or unknown risks of harm.” (Waller v. Truck Ins. Exchange, Inc. (1995)
One distinguishing characteristic of liability insurance derives from Insurance Code section 11580, which requires every policy of liability insurance to expressly state that a plaintiff who obtains a judgment against a defendant insured under such a policy is then entitled to bring an action directly against the liability insurer to recover the policy benefits. Section 11580 effectively makes an injured plaintiff who obtains a final judgment against a tort defendant a third party beneficiary of the defendant’s liability insurance policy. (Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003)
In contrast to liability insurance, “[a] contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.” (Ins. Code, § 620.) “A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.” (Ins. Code, § 621.) Because a contract of reinsurance is defined by statute as a contract of indemnity made for the benefit of the liability insurer, as a general matter it has no relevance in an underlying tort action brought against an insured under the policy of liability insurance. Indeed, the Insurance Code expressly provides that “[t]he original insured has no interest in a contract of reinsurance.” (Ins. Code, § 623, italics added.)
Reinsurance is “ ‘a special form of insurance obtained by insurance companies to help spread the burden of indemnification. A reinsurance company typically contracts with an insurance company to cover a specified portion of the insurance company’s obligation to indemnify a policyholder .... This excess insurance . . . enables the insurance companies to write more poliсies than their reserves would otherwise sustain since [it] guarantees the ability to pay a part of all claims. The reinsurance contract is not with the insured/policyholder. When a valid claim is made, the insurance company pays the first level insured, and the reinsurance company pays the insurance company. The reinsurance company’s obligation is to the insurance company, and the insurance company vis-a-vis the reinsurer is thus the insured, or more appropriately, the “reinsured.” ’ ” (Ascherman v. General Reinsurance Corp. (1986)
With these distinctions between liability insurance and reinsurance in mind, we turn to plaintiffs’ argument that the plain language of section 2017.210 is broad enough to encompass discovery of reinsurance agreements. In seeking to “ ‘ascertain the Legislature’s intent so as to effectuate the purpose of the law’ ” (In re J. W. (2002)
As noted, section 2017.210 provides, in pertinent part, “A party may obtain discovery of the existence and contents of any agreement under which any insurance carrier may be liable to satisfy in whole or in part a judgment that may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment. This discovery may include the identity of the carrier and the nature аnd limits of the coverage. A party may also obtain discovery as to whether that insurance carrier is disputing the agreement’s coverage of the claim involved in the action, but not as to the nature and substance of that dispute. . . ,”
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.” (§ 2017.210.) A liability carrier, as explained, may become contractually liable—both to its insured defendant and to the injured plaintiff who obtains a final judgment against the defendant and thereby becomes a third party beneficiary under the defendant’s liability insurance policy—to “satisfy ... a judgment . . . entered in the action.” (Ibid.) A reinsurance carrier, on the other hand, is not directly liable to satisfy a judgment entered in the action, and makes no payments to either the insured defendant or the successful plaintiff, although the reinsurer may ultimately make payments to the liability insurer “to indemnify or reimburse for payments made to satisfy the judgment.” (Ibid.) Put differently, the liability insurer is directly liable to satisfy the judgment in the underlying action with respect to the parties, whereas a reinsurer is only derivatively liable to “indemnify or reimburse” (ibid.) the liability insurer for payments made in satisfaction of the underlying judgment. We find the statute’s use of the terminology “satisfy the judgment” (ibid.) ambiguous in this regard.
There is further ambiguity created by the statutory language of section 2017.210 to the extent it provides, “A party may also obtain discovery as to
In sum, section 2017.210 neither expressly includes nor expressly excludes reinsurance agreements. Moreover, the statutory language is ambiguous because it leaves unclear whether the section is intended to authorize only discovery of liability insurance coverage. “To the extent a statutory text is susceptible of more than one reasonable interpretation, we will consider ‘ “a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislаtive history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.” ’ (Wilcox v. Birtwhistle, supra,
The text of section 2017.210 was originally enacted as part of the Civil Discovery Act of 1986. (Former § 2016 et seq.) The committee analyses of the 1986 Civil Discovery Act uniformly reflect an intent to authorize limited discovery of liability insurance coverage, but evince no similar intent with respect to a nonparty insurer’s reinsurance agreements. (See Off. of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No. 169 (1985-1986 Reg. Sess.) as amended Aug. 25, 1986, p. 1 [The bill “would generally permit discovery of any unprivileged matter relevant to the subject matter of the action. It would specifically permit discovery of liability insurance without exрressly precluding discovery of the application for insurance,” italics added]; Sen. Com. on Judiciary, Analysis of Assem. Bill No. 169 (1985-1986
“Where more than one statutory construction is arguably possible, our ‘policy has long been to favor the construction that leads to the more reasonable result. [Citation.]’ (Webster v. Superior Court (1988)
The legislative history, context, and purpose of section 2017.210 all suggest the section was specifically intended to authorize limited discovery of a defendant’s liability insurance coverage. Such was the rule at the time section 2017.210’s predecessor, former section 2017(b), was adopted. Under the common law, 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 as a judgment creditor to satisfy his or her judgment. (Superior Ins. Co. v. Superior Court, supra,
“As a general rule, ‘[u]nless expressly provided, statutes should not be interpreted to alter the common law, and should be construed to avoid conflict with commоn law rules. [Citation.] “A statute will be construed in light of common law decisions, unless its language ‘ “clearly and unequivocally discloses an intention to depart from, alter, or abrogate the common-law rule concerning the particular subject matter (California Assn. of Health Facilities v. Department of Health Services (1997)
Permitting discovery of nonparty insurers’ reinsurance agreements as a matter of course under section 2017.210 could also lead to burdensome discovery requests directed at entities that are not even parties tо the litigation. Amici curiae Certain Underwriters at Lloyd’s, London, and Certain London Market Insurance and Reinsurance Companies, explain that they have a direct interest in the outcome of this litigation insofar as certain of their members are reinsurers of petitioner Catholic Relief Insurance Company. They urge that, “If [section 2017.210] allows any plaintiff in a tort action to obtain not only insurance policies but also any and all reinsurance and retrocessional reinsurance [i.e., second level reinsurance contracts], the burden on nonparty insurers would be enormous. . . . With respect to risks subscribed to by London Market Insurers . . . , locating and producing every reinsurance and retrocessional reinsurance agreement for hundreds of syndicates in any tort action would be an incredible burdеn to place even on a party, much less a nonparty. [|] . . . Each syndicate may have a number of reinsurances and each reinsurance may have multiple subscribers.” It seems highly unlikely the Legislature intended such a result. As this court has observed, “ ‘ “It is a settled principle of statutory interpretation that language of a statute should not be given a literal meaning if doing so would result in absurd consequences which the Legislature did not intend.” ’ ” (Younger v. Superior Court (1978)
The language of section 2017.210 allows for discovery of the “existence and contents” of liability insurance policies that may be available to satisfy a judgment, not the assets of the insurance companies providing the insurance. Reinsurance is an asset of a liability insurer, just as capital reserves are, and nothing in prior case law, legislative history, or the statutory languаge suggests that either the common law right to discover insurance
We acknowledge there may be limited circumstances under which a liability insurer’s reinsurance agreements will be directly on the risk to satisfy a judgment in an underlying tort action in the same way as the defendant’s liability insurance coverage itself. One example is when a liability insurer is “fronting” for a reinsurer who is the de facto primary insurer. (See Venetsanos v. Zucker, Facher & Zucker (1994)
In compliance with the case mаnagement order, defendant Church furnished plaintiffs with copies of its liability insurance policies issued by petitioners, as required by section 2017.210. The statute did not further require petitioners, as the Church’s nonparty liability insurer and its corporate parent, to furnish plaintiffs additional discovery of all reinsurance agreements entered into by petitioners with nonparty reinsurers.
CONCLUSION
The judgment of the Court of Appeal is affirmed, and the matter remanded to that court for further proceedings consistent with the views expressed herein.
George, C. J., Chin, J., and Moreno, J., concurred.
Notes
All further undesignated section references are to the Code of Civil Procedure. Former section 2017, subdivisions (a) and (b) shall be referred to as former sections 2017(a) and 2017(b), respectively. Shortly after the Court of Appeal filed its opinion in this case, former sections 2017(a) and 2017(b) were repеaled and reenacted without substantive change as sections 2017.010 (former § 2017(a)) and 2017.210 (former § 2017(b)). (Stats. 2004, ch. 182, §§ 22, 23.) We shall hereafter refer to the new code sections.
The Court of Appeal referred to the Catholic Mutual Relief Society and Catholic Relief Insurance Company of America collectively as petitioners. We shall do the same.
The questions, which the parties have denominated as “interrogatories,” formed the basis for the deposition subpoenas here in issue. Since the questions were directed to nonparties, they were technically not interrogatories. In any event, the deposition subpoenas and the questions on which they were based were nearly identical.
The deposition subpoena requests sought: “1. All writings pertaining to the financial relationship between [the Relief Society and Relief Insurer] with respect to financial responsibility for sexual abuse claims brought against the [Church]; Q] 2. All writings pertaining to the total amount of funds available to satisfy any defense expenses or indemnify losses in connection with sexual abuse claims against the [Church], whether from reserves, policyholder surplus, reinsurance, or other available sources of funding; [][] 3. All writings evidencing the number of sexual abuse claims that have been filed against policyholders affiliated with the Catholic church and the total amount of damages sought by these claims; [][] 4. All writings evidencing the annual amount over the past five years of defense costs and indemnity payments incurred in connection with sexual abuse claims against policyholders affiliated with the Catholic church; [][] 5. All writings evidencing the amount in reserves that havе been set for sexual abuse claims against the [Church] by [petitioners]; [|] 6. All writings evidencing the
The matter became moot with respect to these parties after the cause was submitted in the Court of Appeal and plaintiffs thereafter informed that court that the settlement judge had issued an ex parte order allowing plaintiffs to withdraw the disputed discovery requests and vacating his earlier order denying petitioners’ motions to quash the deposition subpoenas. Plaintiffs sought to dismiss the appeal, petitioners opposed the request. The Court of Appeal found the appeal was not moot because the issues are likely to recur, either among these parties or the many others involved in these consolidated proceedings; and because the issues are of broad public interеst. (See Environmental Charter High School v. Centinela Valley Union High School Dist. (2004)
The permissible scope of discovery in general is not as broad with respect to nonparties as it is with respect to parties. (See Monarch Healthcare v. Superior Court (2000)
There are reported cases in which reinsurance agreements themselves were in dispute or were otherwise directly at issue or relevant to the litigation at hand. In such instances, the reinsurance agreements may be discoverable under the general discovery statute within the sound discretion of the trial court. For example, in Lipton v. Superior Court (1996)
The language of former section 2017(b) (now § 2017.210) was originally derived from Federal Rules of Civil Procedure, former rule 26(b)(2) (28 U.S.C.), now rule 26(a)(1)(D). (See Irvington-Moore, Inc. v. Superior Court (1993)
Federal Rules of Civil Procedure, former rule 26(b)(2) has itself been characterized by one leading authority as a rule intended to provide “explicit recognition of the discoverability of liability insurance information.” (See 3 Hogan, Modem Cal. Discovery (4th ed. 1988) Proposed Civil Discovery Act of 1986, appen. D, p. 182, italics added.) The annotated advisory committee notes on the amendment of former rale 26(b)(2) likewise reflect that the rule was enacted to address the discoverability of “defendant’s liability insurance coverage.” (Advisory com. note, Fed. Rules Civ. Proc., foll, rule 26(b)(2) (28 U.S.C.), italics added.) In any case, for purposes of construing California discovery law, we note the common law rule leading to codification of the California discovery statute predated codification of former rule 26(b)(2). Federal discovery law neither controls the matter before us nor undermines our analysis of the history and legislative intent behind former section 2017(b) (now § 2017.210).
“In a fronting arrangement—a well-established and perfectly legal scheme—policies are issued by a state licensed insurance company and then immediately reinsured 100 percent of their face value by the out-of-state unlicensed insurer.” (Reliance Ins. Co. v. Shriver, Inc. (7th Cir. 2000)
Dissenting Opinion
I respectfully dissent. Code of Civil Procedure section 2017.210 unambiguously provides for discovery of reinsurance policies, by including “any agreement under which any insurance carrier may be liable to . . . indemnify or reimburse for payments made to satisfy the judgment.”
The majority finds further ambiguity in the third sentence of section 2017.210: “ ‘A party may also obtain discovery as to whether that insurance carrier is disputing the agreement’s coverage of the claim involved in the action, but not as to the nature and substance of that dispute.’ ” According to the majority, only the defendant’s liability insurer is in a position to dispute coverage. (Maj. opn., ante, at p. 369.) This is not the case; reinsurers can and do argue that their policies do not cover the claim involved in the action. (See, e.g., Royal Ins. Co. v. Caledonian Ins. Co. (1920)
Given the clarity of the statutory language, there is no need to resort to indications of legislative intent. (Wilcox v. Birtwhistle (1999)
The federal rule has been inteipreted to require disclosure of reinsurance policies. Discovery has not been limited to cases “where the reinsurer was itself a party, or the reinsurance agreement was directly relevant to the parties’ claims or defenses in the litigation.” (Maj. opn., ante, at p. 370, fn. 8.) In Great Lakes Dredge & Dock v. Commercial Union Assur. (N.D.Ill. 1995)
In Tardiff v. Knox County (D.Me. 2004)
I agree with the majority that section 2017.210 does not “authorize[] broad discovery of the financial health of the liability insurer or its ability to meet its contractual оbligations under its policies.” (Maj. opn., ante, at p. 374.) The statute permits only limited discovery of “the existence and contents” of an insurance policy, including “the nature and limits of the coverage.” (§ 2017.210.) No general exposure of insurers’ assets is at issue. Reinsurance is a unique kind of asset; it is not fungible, and is designed solely to respond to liability. (Cf. Pettie v. Superior Court (1960)
The majority creates an exception for discovery of reinsurance agreements that are “directly on the risk to satisfy a judgment.” (Maj. opn., ante, at p. 374.) In such a case, the majority acknowledges that discovery of the policy “would be appropriate.” (Id. at p. 374.)
Kennard, J., and Werdegar, J., concurred.
Further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Further references to enumerated rules are to the Federal Rules of Civil Procedure. Rule 26(a)(1)(D) mandates the disclosure of “any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment.”
The terms quoted by the National Union court are now found in rule 26(a)(1)(D). (See fn. 2, ante.)
Here, there can be little doubt that petitioners have, for their own purposes, marshallеd the reinsurance available to meet the church’s potentially massive liability in the molestation litigation. Moreover, Catholic Relief Insurance Company, like any insurer, must make detailed disclosures of its reinsurance policies to the Insurance Commissioner in order to claim those policies as assets. (Ins. Code, § 922.1 et seq.) Complying with plaintiffs’ request for discovery of the church’s reinsurance policies would not appear to be unduly burdensome.
The majority also recognizes a “narrow exception[]” permitting discovery of a reinsurance policy that is the subject matter of the litigation, as in a coverage dispute between a liability insurer and its reinsurer. (Maj. opn., ante, at p. 374.) However, no exception is required in this circumstance; any policy that is “relevant to the subject matter involved in the pending action” is discoverable as a matter of right under section 2017.010, without resort to the provisions of section 2017.210.