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NORTH RIVER INS. CO. v. PHILADELPHIA REINSURANCE C

July 21, 1992

THE NORTH RIVER INSURANCE COMPANY, Plaintiff,
v.
PHILADELPHIA REINSURANCE CORPORATION AND CIGNA REINSURANCE COMPANY, individually and as successor to INA REINSURANCE COMPANY, Defendants.



The opinion of the court was delivered by: ALFRED M. WOLIN

 WOLIN, District Judge

 This is an appeal by CIGNA Reinsurance Company ("CIGNA Re") pursuant to Rule 40D4(a) of the General Rules of the United States District Court for the District of New Jersey. CIGNA Re seeks reversal of that part of the Opinion and Order of Magistrate Judge Pisano filed April 6, 1992, by which Judge Pisano denied CIGNA Re's motion to compel discovery of attorney-client documents created in connection with Alternative Dispute Resolution ("ADR") proceedings between the North River Insurance Company ("North River") and Owens-Corning Fiberglas Corporation ("OCF"). For the reasons explained below, the Court will deny the appeal and affirm Judge Pisano's decision.

 BACKGROUND

 This action is a reinsurance coverage dispute between North River, the reinsured, and CIGNA Re, the reinsurer. North River has alleged that under a reinsurance agreement, CIGNA Re must indemnify North River for sums paid to OCF for costs of defense paid in connection with claims made puruant to excess policies of insurance. One issue on the motion before Judge Pisano was whether certain attorney-client documents, related to North River's obligation to pay defense costs to OCF, are discoverable.

 Thousands of products liability actions were filed against OCF in the 1970s and 1980s arising from its sales of asbestos-containing products. In 1985, North River, OCF's excess insurer, along with a number of other insurers of asbestos manufacturers, entered into the "Wellington Agreement" in an effort to simplify and reduce the costs of resolving insurance coverage claims arising from sales of asbestos. That agreement provided for the resolution of claims through ADR. It also created a presumption that issuers of policies would pay defense costs unless the policies expressly provided to the contrary. (Wellington Agreement Section 11). To contest the presumption to pay defense costs, the Wellington Agreement required compliance with a strict scheduling procedure. (Wellington Agreement, Appendix D).

 Pursuant to the Wellington Agreement, OCF and North River engaged in the arbitration of OCF's claims against North River. Following extensive discovery and a six-day evidentiary hearing before a retired federal judge acting as arbitrator, a decision was issued in July 1989 that required North River to pay OCF's defense costs on covered asbestos claims. In his decision, the arbitrator determined that North River was obligated to pay defense costs on two alternative grounds: (1) it had waived its right to contest payment of defense costs by its failure to comply with the scheduling procedure; and (2) "Within the meaning of the Wellington Agreement, [the policy between North River and OCF] does not expressly provide that allocated expenses [i.e., defense costs] are not payable", and hence must be paid. See Memorandum Opinion and Judgment dated July 26, 1989, annexed as Exhibit A to Exhibit 1 of Defendant's Appendix on Appeal. North River commenced an appeal of the ADR decision, but then abandoned the appeal. It soon thereafter began to submit claims to CIGNA Re for a part of the defense costs it paid to OCF.

 The dispute involved on this appeal centers on whether attorney-client communications between North River and its counsel during the ADR proceeding are discoverable. In particular, CIGNA Re seeks to discover documents that bear on North River's decision to abandon its appeal of the arbitrator's decision holding North River responsible for payment of defense costs. North River contends that none of the communications between it and its counsel are discoverable. CIGNA Re contends on several grounds that the documents may be discovered. The Court will address each argument separately.

 DISCUSSION

 A.Standard of Review

 A magistrate's adjudication of a non-dispositive motion will be set aside only if the order is found to be clearly erroneous or contrary to law. Cipollone v. Liggett Group. Inc., 785 F.2d 1108, 1113 (3d Cir. 1986), cert. denied, 484 U.S. 976, 108 S. Ct. 487, 98 L. Ed. 2d 485, (1987) (citing 28 U.S.C. § 636 (b)(1)(A)); see also Fed. R. Civ. P. 72 (a); Rule 40 D(4) of the General Rules for the U.S. Dist. Ct. for the Dist. of N.J. ("the local rules"). A finding is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. United States v. United states Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948).

 B. The Common Interest Doctrine

 CIGNA Re contends that it is entitled to discover the attorney-client communications in issue under the "common interest" doctrine. The "common interest" doctrine applies when multiple persons are represented by the same attorney. In that situation, communications made to the shared attorney to establish a defense strategy remain privileged as against the rest of the world. See United States v. Moscony, 927 F.2d 742, 753 (3d Cir. 1991), cert. denied, 115 L. Ed. 2d 984, 111 S. Ct. 2812 (1991); In re Bevill Bresler & Schulman Asset Management Corp., 805 F.2d 120, 126 (3d Cir. 1986). The clients may not, however, later assert the privilege against each other after their interests become adverse. See McCormick on Evidence § 91 at 219 (3d ed. 1984); J. Wigmore on Evidence § 2312 at 605-06 (hereafter "Wigmore"); Longo v. American Policyholders Ins. Co., 181 N.J. Super. 87, 91-92, 436 A.2d 577 (Law Div. 1981) (holding that communications between insurer and shared counsel in underlying action must be produced to insured); Waste Management, Inc. v. Int'l Surplus Lines Ins. Co., 144 Ill.2d 178, 579 N.E.2d 322, 328, 161 Ill. Dec. 774 (1991); Independent Petrochemical Corp. v. Aetna Cas. and Sur. Co., 654 F. Supp. 1334, 1365-66 (D. D.C. 1986) (applying common interest doctrine to compel production of insured's communications with counsel related to underlying claim). The classic statement of this principle is by Professor Wigmore, who stated:

 [A] communication by A to X as the common attorney of A and B, who afterwards become party opponents, is not privileged as between A and B since there was no secrecy ...


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