Plaintiffs want to know a defendant’s financial position so they may determine the enforceability of a judgment. Often the mere knowledge of an insurance policy will steel a plaintiff’s resolve to bring or to continue litigation.
The two most common situations in which plaintiffs seek disclosure of a defendant’s insurance policy are where: (a) they are concerned that there is a risk that the defendant will soon be insolvent or bankrupt which may require joinder of the insurer; and/or (b) they seek disclosure to assist in settlement negotiations.
On its face, the former is more legitimate than the latter.
The general rule is that parties to litigation are not required to disclose documents which are not relevant to the issues between the parties as determined by the pleadings.
This means that, in most disputes where an insurer is not a party, the defendant’s insurance policy would not be in issue. Recent decisions both here and in the United Kingdom have tested this proposition.
Walker v Forbes
The liquidators of several companies sought copies of any insurance policies held by those companies’ former directors. The liquidators sought to employ High Court rules 8.19 and 8.20, which concern particular discovery and pre-commencement discovery.
Rule 8.19 provides for discovery of particular documents or categories of documents where a party has not disclosed documents that ought to have been discovered. The liquidators argued that the directors were obliged to discover the relevant insurance policies pursuant to their general discovery obligations.
The liquidators mounted a number of arguments to confront the general rule that a party is only required to discover documents that are relevant to the pleaded issues.
In particular, the liquidators argued that, because they were required to disclose details of their litigation funder’s financial position, there would be a “significant imbalance between the degree of information” if the defendant was not required to disclose their insurance policy.
Justice Lang did not accept the liquidators’ arguments and found, among other things, there is no general requirement of balance between the level of information parties provide in relation to their respective financial positions, and the information disclosed by the litigation funder was a “direct consequence of the involvement of the litigation funder as a whole” – certain details are required to be disclosed in any event; and the role of the courts is to determine cases that come before them.
It is not for the courts to consider the likely ability of a defendant to satisfy judgment and indeed many judgments are entered against defendants who have no prospect of satisfying them.
The court then dealt with the liquidators’ application under rule 8.20, which provides a discretion to the court to order particular discovery before a proceeding is commenced. This was on the basis that the liquidators claimed they were contemplating an action directly against the defendant’s insurer under section 9 of the Law Reform Act, which allows a third party to claim directly against another party’s insurer in certain circumstances.
Consequently, the liquidators argued that they could not formulate that claim without knowing who the insurer was and what the terms of the policy were. Lang J declined to exercise the court’s discretion because:
• it was clear that the liquidators had learnt of the existence of the defendant’s insurance in without prejudice settlement negotiations and therefore it would be wrong and very close to an abuse of process if the liquidators could benefit from information obtained in such a manner;
• there was no suggestion that the defendant would fail to make a claim on the policy or that the insurer intended to decline cover; and
• the liquidators were not genuinely interested in a proceeding against the insurer – they wanted a copy of the insurance policy only to assist them in negotiating a settlement and in deciding whether to pursue a claim against the former director.
So the New Zealand position is that insurance policy documentation is not generally discoverable unless it falls within the usual discovery rules.
Peel Port Shareholder Finance Company Limited v Dornoch Limited
Peel Port’s warehouse suffered fire damage which it alleged was caused by European Active Projects Limited (EAPL).
EAPL’s insurer, Dornoch, declined cover on the basis that EAPL had failed to observe certain precautions required by the policy.
Peel Port was concerned that EAPL would be unable to meet a judgment without insurance coverage even though it was solvent at the time proceedings were commenced.
Peel Port sought a copy of EAPL’s policy to test whether Dornoch’s decision to decline coverage might be challenged.
Peel Port applied under Rule 31.16 of the UK Civil Procedure Rules, which is similar to rule 8.20 of the High Court rules in that it provides a mechanism for disclosure before proceedings have started, if in the judge’s discretion it is “desirable” to do so.
Justice Jefford declined to require disclosure of EAPL’s insurance policy as Peel Port’s application involved too many hypotheticals – EAPL might become insolvent and Peel Port might have a claim against its insurer, Dornoch.
This finding was supported by:
• the separate regime for the provision of information about insurance policies under the Third Parties (Rights against Insurers) Act 2010. Parliament did not intend that Rule 31.16 would be used to obtain insurance policies from insurers;
• there has never been an express statutory provision entitling a litigant to obtain the insurance policy of a solvent insured (because a litigant takes a defendant as they find them);
• the insurance policy did not meet the test for standard disclosure; and
• attempts to deploy other provisions of the Civil Procedure Rules to obtain the insurance policy of a solvent insured have failed in other cases.
Key takeaway
There is scope for a plaintiff to apply for an order requiring disclosure of an insurance policy under Rule 8.20 in a case where there is reason to believe: (a) the defendant’s insurer will decline cover; (b) the defendant is likely to become insolvent; and (c) there is no dishonesty involved in how the plaintiff came to acquire the knowledge of the policy.
However, the fact that neither plaintiff succeeded in obtaining the insurance policies in the above cases shows that there is a high
bar in seeking to persuade a court to order disclosure. Although disclosure may facilitate more efficient outcomes, or even avoid unnecessary litigation (especially in cases like Peel Port), plaintiffs cannot request disclosure of documents that are not relevant to the proceedings, or anticipated proceedings, before a court.
by Andrew Horne, partner, and Olivia Brown, solicitor, at Minter Ellison Rudd Watts
