Opinion
Cause No. IP99-9313-C-H/K
June 5, 2002
ENTRY ON PLAINTIFFS' MOTION TO COMPEL
Plaintiffs in this consolidated multidistrict action have moved to compel defendant ATT to produce a copy of a settlement agreement between ATT and several of its liability insurers. ATT opposes such production, arguing that the terms of the agreement are confidential and that the agreement is not an "insurance agreement" within the meaning of Rule 26(a)(1)(D) of the Federal Rules of Civil Procedure, which requires disclosure of such agreements in most civil cases. ATT has filed a copy of the agreement under seal for in camera inspection by the court. For the reasons explained below, the court denies plaintiffs' motion to compel production of the settlement agreement.
The agreement in question resolved two lawsuits, one of which was ATT Corp. v. National Union Fire Insurance Co., et al., in the Monroe Circuit Court in Monroe County, Indiana as Cause No. 53C05-9811-CP-01735 (the "National Union" case). In the National Union case, ATT and related entities asserted claims under several insurance policies seeking indemnification for potential liability and costs of defense in the lawsuits by property owners challenging ATT's actions laying fiber optic cable along rights-of-way for railroads, pipelines, and other utilities. (ATT has previously produced copies of the insurance policies in question.)
The plaintiffs' strongest basis for seeking disclosure of the confidential settlement agreement is Rule 26(a)(1)(D), which requires that the parties' initial disclosure in most federal civil cases include production for inspection and copying as under Rule 34 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.
This provision of the initial disclosure rule is substantially identical to the 1970 version of Rule 26(b)(2), which provided that a party could obtain discovery of "the existence and contents 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." See 48 F.R.D. 487, 493 (1970). (The 1970 amendment resolved a split in authority among district courts on an issue for which appellate review was difficult to obtain. The amendment was adopted, the Rules Advisory Committee explained, to "enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation." Id. at 499.)
The court has examined the National Union agreement itself. The court finds that the agreement falls outside the scope of Rule 26(a)(1)(D). Under the terms of the agreement, no 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." In other words, the insurance companies have no potential liability that is contingent upon the outcome of these cases. Whether the insurance companies have any contingent liability for the costs of defense falls outside the carefully worded terms of Rule 26(a)(1)(D), which are limited to insurance for satisfaction of a judgment or to indemnify for payments made to satisfy a judgment, not the costs of defense.
Plaintiffs also rely on cases requiring production to non-settling defendants of otherwise confidential settlement agreements between plaintiffs and other defendants in the same case. See, e.g., White v. Kenneth Warren Son, Ltd., 203 F.R.D. 364 (N.D.Ill. 2001); Bennett v. La Pere, 112 F.R.D. 136 (D.R.I. 1986) (ordering disclosure to defendant hospital of confidential settlement agreement between medical malpractice plaintiffs and defendant physicians). The reasoning of these cases does not apply here because there is no apparent basis upon which the terms of ATT's settlement with its insurance carriers might arguably be admissible or lead to the discovery of admissible evidence in plaintiffs' cases against ATT. Cf. Bennett, 112 F.R.D. at 138-39 (identifying ways in which terms of plaintiffs' settlement with co-defendants might become admissible at trial).
Both the White and the Bennett courts found analogical support for their decisions in the requirement that liability insurance policies be disclosed. White, 203 F.R.D. at 367; Bennett, 112 F.R.D. at 141. The reasoning does not extend, however, to support compulsory disclosure of a defendant's settlement agreement with its insurance companies, at least where the settlement agreement does not itself impose on the insurance companies a contingent obligation to pay the costs of any judgment that might be entered. The theories of relevance applied in White and Bennett simply have no application to this different situation.
Finally, in response to ATT's correct assertion that the settlement agreement contains no promise to indemnify ATT for any judgment that might be entered in these cases, plaintiffs argue that whatever consideration ATT received is "the functional equivalent of the insurance coverage previously available to ATT." Pl. Reply Br. at 1. The argument is not persuasive. The 1970 amendment to Rule 26 distinguished between insurance coverage and "other facts concerning defendant's financial status. . . ." Fed.R.Civ.P. 26, 1970 Rules Advisory Committee Notes. Insurance coverage was singled out for special treatment: "(1) because insurance is an asset created specifically to satisfy the claim; (2) because the insurance company ordinarily controls the litigation; (3) because information about coverage is available only from defendant or his insurer; and (4) because disclosure does not involve a significant invasion of privacy." Id. The terms of ATT's settlement agreement in the National Union case fall outside this rationale. No asset was created specifically to satisfy the claims in these cases, nor do the insurers control the litigation. The consideration ATT received is not the functional equivalent of a liability insurance policy and is not discoverable.
The fact that more thorough knowledge of ATT's finances might help plaintiffs formulate a strategy for settlement negotiations does not render the terms of the agreement discoverable. Similarly, knowledge of a defendant's or insurer's litigation reserves for a case would also be helpful to plaintiffs in many cases for the same reasons, but such information is ordinarily not discoverable. See, e.g., Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 675 (S.D.Ind. 1991) (ordering redaction of reserve information in otherwise discoverable documents); cf. Simon v. G.D. Searle Co., 816 F.2d 397, 404 n. 8 (8th Cir. 1987) (affirming order compelling production of reserve information in product liability action where relevant to issues of notice, defect, and punitive damages); id. at 407-08 (Gibson, J., dissenting) (arguing that reserve information should be protected even in that case).
Plaintiffs' motion to compel production of the settlement agreement in the National Union case is hereby denied.