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FINRA Issues Reg Notice Seeking Comments on Discovery Guide Change on Insurance
Posted on Categories Arbitration, News, Other FINRA Rulemaking, RulemakingTags , , ,

FINRA has issued a Regulatory Notice seeking comments on proposed Discovery Guide changes requiring production of insurance information.

We reported in SAA 2018-19 (May 16) that FINRA’s Board of Governors approved at its May 9-10 meeting a proposal to amend the arbitration Discovery Guide. In keeping with the “new normal,” before filing the rule change proposal with the SEC, FINRA stated it would issue a Regulatory Notice soliciting comments. As promised, FINRA on July 26th issued Regulatory Notice 18-22, FINRA Requests Comment on Proposed Amendments to Its Discovery Guide to Require Production of Insurance Information in Arbitration.

As described on the Website: “FINRA is requesting comment on proposed amendments to the Discovery Guide’s (Guide) Firm/Associated Persons Document Production List (Firm/Associated Persons List) to require firms and associated persons, upon request, to produce documents concerning third-party insurance coverage in a customer arbitration proceeding. The proposed amendments would strictly limit the circumstances under which insurance coverage information could be presented to the arbitrators.” FINRA justifies the move by indicating that most states require such disclosure and so, too, do the federal courts, under FRCP 26.

New List 1 Question

As described in the nine-page Regulatory Notice, FINRA is proposing to add to List 1 (Documents the Firm/Associated Persons Shall Produce in All Customer Cases) a new Question 23 providing:

(a) If requested, the firm/associated persons shall produce documents sufficient to provide details concerning the coverage and limits of any insurance policy under which any third party insurance carrier might be liable to satisfy in whole or in part an award issued by an arbitrator in the subject arbitration proceeding or to indemnify or reimburse a party for payments made to satisfy an award.

(b) It may be prejudicial for arbitrators to be given information related to the coverage or lack of coverage by liability insurance. Therefore, any party wishing to submit evidence at a hearing relating to insurance must demonstrate to the arbitration panel that: (1) there are extraordinary circumstances warranting admission of the insurance information; or (2) the existence of an insurance policy is directly related to the dispute outlined in the statement of claim. The party must seek express authorization from the arbitration panel to submit the evidence.

Comments Sought

The Notice seeks overall comments on the proposal, and poses five major questions, each with several subparts. As to why it is moving ahead with the change, the Authority says: “[C]ustomers could be more likely to request insurance information from less capitalized or smaller firms. Customers filed 4,811claims in arbitration against firms and associated persons in 2016 and 2017. FINRA staff is able to identify 377 cases (8 percent) where the claim amount was greater than the excess net capital of a firm named as a respondent. The majority (3,958 or 73 percent) of the firms named as a respondent were either large or mid-sized, whereas the remaining firms (1,459 or 27 percent) were small” ((footnote omitted).

(ed: *Comments – of which we’re sure there will be many -- are due September 24th and can be sent by e-mail to or by surface mail to: Jennifer Piorko Mitchell, FINRA Office of the Corporate Secretary, 1735 K Street, NW, Washington, DC 20006-1506. **The proposed change has its origins in the Dispute Resolution Task Force. Recall that the DR Task Force Report at pages 41-2 stated: “The task force recommends that the document production list of presumptively discoverable documents for the firm/associated persons to produce be revised to require production of all insurance policies that may be applicable to claimants’ claims.”) (SAC Ref. No. 2018-29-01)

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