Case Title: In the Matter of the Liquidation of Integrity Insurance Company

Citation: 

Docket Number: a-72-99

State: new-jersey

Court: New Jersey Supreme Court

Date: 2000-07-26T00:00:00Z

Document:
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). LONG, J., writing for a unanimous Court. The issue addressed by the Court is whether confidentiality claims and privileges may preclude or limit discovery of documents characterized by the New Jersey Commissioner of Insurance (Commissioner) as deliberative in nature. In December 1986, the Superior Court, Chancery Division entered an order declaring Integrity Insurance Company (Integrity) to be insolvent. At the time, Integrity was a property and casualty insurer licensed to transact business in every state. The Chancery court directed the rehabilitation of Integrity and appointed the Commissioner and his statutory successors in office as rehabilitators. In March 1987, the court ordered Integrity into liquidation, and appointed the Commissioner as liquidator pursuant to New Jersey's version of the Uniform Insurers Liquidation Act (ULA). The Commissioner was directed to marshal Integrity's assets and liquidate its liabilities for the benefit of all claimants against the estate. On June 17, 1996, the Commissioner filed a Final Dividend Plan (FDP) with the court to effect the early termination of the Integrity estate. As drafted, the FDP will require Integrity's reinsurers to pay off approximately $800 million dollars of debt. Munich Reinsurance Company (Munich) and other reinsurers oppose the FDP submitted by the Commissioner for approval. During discovery, the Commissioner refused to produce certain documents that Munich requested, claiming they were protected from discovery by the deliberative process privilege, the work product privilege, or a combination of the two. The deliberative process privilege permits the government to withhold documents that reflect advisory opinions, recommendations, and deliberations regarding the process of formulating governmental decisions and policies. The trial court held that there is a deliberative process privilege in New Jersey for inter- or intra-agency communications, but that when the Commissioner is acting as liquidator, he or she is not functioning as a government official and, therefore, is not subject to the privilege. The court concluded that when the Commissioner functions as liquidator under the ULA, he or she steps into the shoes of the insolvent insurance company and, therefore, cannot assert the deliberative process privilege. On leave to appeal granted, the Appellate Division held that although deliberative process materials may not always be discoverable, no such qualified privilege exists. The court went on to conclude, however, that the Commissioner acts in a public capacity as a liquidator and can invoke New Jersey Rule of Evidence (N.J.R.E.) 515 to protect official information of the State. The Appellate Division remanded the matter for an in camera hearing to determine whether the documents the Commissioner seeks to protect are relevant and, if so, whether they nonetheless may be withheld from disclosure pursuant to N.J.R.E. 515. The Supreme Court granted the Commissioner's motion for leave to appeal. HELD: The deliberative process privilege exists in New Jersey; it is separate and distinct from N.J.R.E. 515. Because of the Commissioner's hybrid status as liquidator, the deliberative process privilege cannot be invoked to preclude discovery of relevant documents. 1. The documents underlying the Commissioner's decision regarding the FDP are plainly relevant to the reinsurers' challenge to the extent that they pertain to the appropriateness of the FDP, and to the Commissioner's exercise of her fiduciary obligation to Integrity's creditors, or are likely to lead to admissible evidence on those subjects. The Commissioner claims that the Court declared the existence of the deliberative process privilege in McClain v. College Hosp. and that it applies to these documents, precluding their discovery. (Pp. 6-11) 2. The Court is satisfied that the intent of McClain was to establish a qualified privilege for governmental deliberative process materials. Under that privilege, the initial burden falls on the State agency to demonstrate that the documents it seeks to shield are pre-decisional and deliberative in nature (containing opinions, recommendations, or advice regarding agency policies). Once the deliberative nature of the documents is established, there is a presumption against disclosure. The burden shifts to the party seeking disclosure to show that his or her compelling or substantial need for disclosure outweighs the government's interest in non-disclosure. Factors to consider are the importance of the evidence to the movant, its availability from other sources, and the effect of disclosure on frank and independent discussion of contemplated governmental policies. (Pp. 11-16) 3. The deliberative process privilege is inapplicable if the person asserting it is not performing a governmental function. The Commissioner functions in a hybrid status, part public and part private, when he or she oversees the liquidation of an insolvent insurer. Thus, the deliberative process privilege is inapplicable. Nonetheless, neither discovery nor confidentiality will be presumed. The State must establish the deliberative nature of the documents and, thereafter, each side will advance its claims (for either confidentiality or disclosure). The trial court must then engage, after an in camera review of the documents, in a balancing process to determine whether, and under what circumstances, disclosure of sensitive documents should be ordered. In striking the balance, the court may utilize available discovery limiting tools, including protective orders, sealing, and redaction. (Pp. 16-22) 4. The deliberative process privilege and N.J.R.E. 515 are not interchangeable. The basic difference between the two is the N.J.R.E. 515 protects facts from disclosure whereas the deliberative process privilege protects opinions. Although the Commissioner has not invoked N.J.R.E. 515, her hybrid status informs the inquiry if she does so. The information pertaining to the FDP and liquidation is not official information of the State. Hence, the Commissioner may not claim the insulation of liquidation related facts by invoking N.J.R.E. 515. As in the case of the deliberative process privilege, if the Commissioner seeks the protection of N.J.R.E. 515, the reinsurers may counter with the need for disclosure and the trial court will be required to balance those interests. (Pp. 22-24) Judgment of the Appellate Division is AFFIRMED in part, REVERSED in part, and the matter is REMANDED to the Law Division to undertake proceedings consistent with this opinion. CHIEF JUSTICE PORITZ and JUSTICES O'HERN, STEIN, COLEMAN and VERNIERO join in JUSTICE LONG'S opinion. JUSTICE LAVECCHIA did not participate. IN THE MATTER OF THE LIQUIDATION OF INTEGRITY INSURANCE COMPANY Argued May 1, 2000 -- Decided July 26, 2000 On appeal from the Superior Court, Appellate Division, whose opinion is reported at 321 N.J. Super. 399 (1999). Michael E. Goldman, Deputy Attorney General, argued the cause for appellant and cross respondent Commissioner of Banking and Insurance, (John J. Farmer, Jr., Attorney General of New Jersey, attorney and Sills Cummis Radin, Special Counsel, attorneys; Nancy Kaplen, Assistant Attorney General, of counsel; Mr. Goldman, Thalia P. Cosmos, Deputy Attorney General, Steven S. Radin, Thomas S. Novak and Steven M. Ziolkowski, on the briefs). David M. Spector, a member of the Illinois bar, argued the cause for respondent and cross-appellant Munich Reinsurance Company, (Winne, Banta, Rizzi, Hetherington & Basralian, attorneys; Mr. Spector, Donald A. Klein and Brian J. Neff, of counsel and on the briefs). The opinion of the court was delivered by LONG, J. In this case we are required to determine the nature and extent of the pretrial discovery to which the creditors of an insolvent insurer are entitled as against the Commissioner of Insurance (Commissioner) acting as liquidator. More specifically, the issue to be addressed is whether confidentiality claims and privilege may preclude or limit discovery of documents characterized by the Commissioner as deliberative in nature. The FDP will require Integrity's reinsurers to pay off approximately $800 million dollars of debt. Munich Reinsurance Company (Munich) and other reinsurers oppose the FDP that has been submitted to the court for approval. During discovery, the Commissioner refused to produce certain documents that Munich requested. The Commissioner prepared a privilege log listing and describing over 100 documents with respect to which she asserted the deliberative process privilege, the work product privilege, or a combination of the two. The work product and attorney client privileges are not at issue on this appeal. According to the Commissioner, the documents fall into four general categories: (1) Correspondence summarizing the issues raised and the discussion of those issues that occurred at the monthly status meeting with staff members; (2) Departmental memoranda and other correspondence relative to issues discussed or to be discussed at the monthly status meeting; (3) Departmental memoranda discussing, referencing or suggesting advice of counsel litigation strategy and/or potential policy decisions; (4) Reports of management/administrative studies of Integrity prepared by independent consultants. The trial court held that there is a deliberative process privilege in New Jersey for inter- or intra-agency communications, but that when the Commissioner is acting as liquidator he or she is not functioning as a government official and, therefore, is not subject to the privilege. In reaching that result, the court observed that the FDP describes the liquidator as [t]he New Jersey Commissioner of Insurance, acting solely in the capacity of receiver, not as regulator, . . . and that a number of states, including New Jersey, that have adopted the Uniform Insurers Liquidation Act in whole or part, have recognized that a state insurance commissioner is not acting as a government regulator when serving in the capacity of liquidator. According to the trial court, the Commissioner, functioning as liquidator, for all intents and purposes slips into the shoes of the insolvent insurance company, and cannot assert the deliberative process privilege. By leave granted, the Commissioner appealed. The Appellate Division, citing McClain v. College Hosp., 99 N.J. 346, 353 (1985), held that although deliberative process materials may not always be discoverable, no such qualified privilege exists. In re Liquidation of Integrity Ins. Co., 321 N.J. Super. 399, 415 (App. Div. 1999). The court went on to conclude, however, that the Commissioner acts in a public capacity as a liquidator and can invoke N.J.R.E. 515 to protect official information of the State. Thus, it remanded the case for an in camera hearing to determine whether the documents the Commissioner seeks to protect are relevant and, if so, whether they nonetheless may be withheld from disclosure pursuant to N.J.R.E. 515. Id. at 416-19. The Commissioner moved for leave to appeal and we granted the motion. 163 N.J. 70 (2000). The Commissioner asks that we declare that a deliberative process privilege exists in New Jersey and that it is entirely distinct from N.J.R.E. 515, which the Commissioner has not invoked in this case. There is a policy involved in this claim of privilege for this advisory opinion_the policy of open, frank discussion between subordinate and chief concerning administrative action. that the initial focus must be upon the nature of the materials sought. The balancing process must be concretely focused upon the relative interests of the parties in relation to these specific materials. There is a qualitative difference in the nature of information that an investigative agency acquires. Useful guidelines for the determination of this balancing were stated by the California Supreme Court: Implicit in each assessment is a consideration of consequences_i.e., the consequences to the litigant of non disclosure, and the consequences to the public of disclosure. The consideration of consequences to the litigant will involve matters . . . including the importance of the material sought to the fair presentation of the litigant's case, the availability of the material to the litigant by other means, and the effectiveness and relative difficulty of such other means. The consideration of the consequences of disclosure to the public will involve matters relative to the effect of disclosure upon the integrity of public processes and procedures. This standard is . . . flexible and adaptable to different circumstances and sensitive to the fact that the requirements of confidentiality are greater in some situations than in others. The process has been described as calling for an exquisite weighing process by the trial judge. As the considerations justifying confidentiality become less relevant, a party asserting a need for the materials will have a lesser burden in showing justification. If the reasons for maintaining confidentiality do not apply at all in a given situation, or apply only to an insignificant degree, the party seeking disclosure should not be required to demonstrate a compelling need. [Id. at 361-62 (citations and quotations omitted).] Finally, we concluded that the Board's internal memorandum was entitled to a high degree of protection on two grounds. First, it is an intra-agency memorandum, entitled to confidentiality, and second, it also presumably contains matters of opinion in the committee's investigation that may or may not have been acted upon by the agency in its final deliberation and conclusion. Again, we would expect that the Court would apply the Mink rationale to determine whether any of its contents is strictly factual and would conclude that such information would be reasonably available to the plaintiff, excising matters of opinion or conjecture on the part of the agency members. Whether the need for its conclusory contents is so compelling and the prejudice so great due to their unavailability, will be for the trial court to decide. We note that this is not the final action of the Board and, as such, is entitled to a high degree of confidentiality. NO. A-72/102 IN THE MATTER OF THE LIQUIDATION OF INTEGRITY INSURANCE COMPANY DECIDED July 26, 2000 Chief Justice Poritz