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OneBeacon Insurance Co. v. Forman International

December 13, 2006


The opinion of the court was delivered by: Sweet, District Judge


Defendants Forman International, Ltd. and Forman International, LLC ("Forman") have moved pursuant to Rules 37(a) (2) (B) and 45(e), Fed. R. Civ. P., to compel the production of documents withheld as privileged by plaintiff OneBeacon Insurance Company ("OneBeacon") and its attorneys Cozen O'Connor ("CO'C"). For the reasons set forth below, the motion is granted in part and denied in part.

Prior Proceedings

The complaint in this action was filed on March 22, 2004. A motion to dismiss by Forman was determined in an opinion of January 20, 2005 (the "January 20 Opinion"). An amended complaint was filed on February 28, 2005, and discovery proceeded.

The instant motion to compel was heard on June 14, 2006.

The Facts

The facts set forth below are taken from the parties' submissions and do not constitute findings by the Court.

In early 1999, Forman and OneBeacon's corporate predecessor, CGU, executed a Broker Agreement dated January 1, 1999 (the "Broker Agreement"). The Broker Agreement set forth the parties' relationship and, according to Forman, provided that in negotiations regarding potential coverage, Forman would serve as the agent and representative of potential insureds.

1. Century 21's Insurance Coverage

Forman approached OneBeacon regarding general casualty insurance coverage for Century 21, which owns and operates department stores in the metropolitan New York area, including a store 150 feet from the World Trade Center. Century 21's insurance consultant, Stephen Gerber ("Gerber"), provided "specifications" setting forth a proposed business interruption ("BI") provision that appeared in Century 21's then-current insurance policy.

On July 13, 1999, Gerber asked Forman, who in turn asked OneBeacon, to "please confirm that the entire business interruption section of my property specifications will be endorsed on this policy." OneBeacon responded to other items raised by Gerber, but did not object to the inclusion of the BI provision set forth in the specifications. However, on or about August 20, 1999, OneBeacon issued an insurance policy to Century 21 (the "Policy" or the "Century 21 Policy") which did not include the BI provision set forth in Gerber's specifications. Rather, the Policy set forth a blanket limit of $200 million per occurrence with a $100 million limit per occurrence for lost BI income.

On June 6, 2000, OneBeacon received a copy of an insurance binder issued to Century 21 that provided: "[d]elete entire CGU business income form . . . The only BI wording on the policy should be our 'Loss Determination' as provided."

As a result of the terrorist attacks of September 11, 2001, Century 21's department store near ground zero suffered physical damage that interrupted its business operations. Century 21 subsequently submitted claims to OneBeacon totaling more than $238 million, including at least $162 million for BI losses. Century 21 based its claim in part on its belief that the crashing of two planes into the Twin Towers constituted a two-occurrence loss entitling it to twice the Policy limits.

On September 27, 2001, OneBeacon estimated that Century 21's "potential gross loss" appeared to be between "$90M and $140M." On or before October 29, 2001, OneBeacon apparently established a $150 million "case file reserve" to account for its anticipated liability for Century 21's loss, including $100 million for lost BI -- the Policy's one-occurrence limit.

On or before October 1, 2001, OneBeacon apparently retained Richard Mackowsky ("Mackowsky"), an insurance partner at CO'C, to become part of it's Adjustment/Settlement Team to investigate, measure, negotiate, and pay the claim submitted by Century 21. The Adjustment/Settlement Team: (1) collected factual information about the claim; (2) met with OneBeacon's underwriters, outside adjusters, accountants and consultants; (3) met with Forman's principal, Wayne Forman; (4) met with Century 21 as well as its consultants and attorneys; (5) analyzed the coverage aspects of the claims; (6) measured Century 21's loss; and (7) eventually approved payment to Century 21 of $143 million. The Adjustment/Settlement Team apparently discussed the relevant information through a series of e-mail messages and other documents.

During the claims-adjustment process, several significant coverage issues arose, including the contentions that Century 21's loss constituted two occurrences entitling Century 21 to twice the Policy's limit (i.e., up to $400 million in total, including $200 million for BI alone), that New York's statutory interest rate of nine percent was applicable to any legitimate claims not paid within thirty days after the submission of a proper proof of loss, that OneBeacon's decision not to renew the Century 21 policy during the claims-adjustment process strengthened the possibility that Century 21 could assert extra-contractual claims against OneBeacon, and that OneBeacon was liable to the extent of all the BI loss.

On March 23, 2003, OneBeacon entered into a settlement agreement (the "Settlement Agreement") with Century 21 in which OneBeacon agreed to pay a total of $143,004,849 in exchange for a full release.

The Amended Complaint has alleged that OneBeacon was forced to overpay Century 21's insurance claim by some $52.4 million because Forman improperly agreed, on Century 21's behalf, to delete OneBeacon's standard BI provision in favor of the BI provision proposed by Century 21.

2. The Document Requests to OneBeacon

Forman served OneBeacon with its first set of document requests, dated May 31, 2005 ("Forman's First Request"). Forman's First Request sought, among other things, all documents relating to:

Century 21's submissions of claims for business interruption insurance coverage following the [terrorist attacks] (Req. 15);

Any dispute between OneBeacon and Century 21 concerning Century 21's insurance coverage under the Policy (Req. 16);

Any dispute between OneBeacon and Century 21 concerning the BI language in the Policy (Req. 17); and

OneBeacon's decision to resolve its dispute with Century 21 regarding coverage ...

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