This is a matter I see come up in a lot of cases: whether an insurer’s estimates of potential losses due to claims on its policies, or reserves, are subject to discovery by the other side. (I’ve brought it up myself more than a time or two when representing policyholders). Spirco Environmental, Inc. v. American International Specialty Lines Insurance Co., 2005 WL 2521618 (E.D. Mo. August 30, 2006) addressed this issue, and came down where one would expect: reserves generally are not discoverable where no bad faith claim was present.
As the court explained:
[t]he failure of an insurer to offer a reasonable amount to settle a claim, on a claim of bad faith breach of duty, might be evidenced by the insurer’s setting aside a substantially greater amount of reserve for the claim.
Courts have generally been more reluctant to order discovery of the insurer’s reserves when the question is not the insurer’s good or bad faith but a question of policy interpretation. Sometimes discovery is permitted in a context other than bad faith, however. In at least one case that I’m aware of, discovery of reserves was allowed in a lost policy case to establish what the limits of the policy might have been.
Insurers usually respond to discovery requests about their reserves by objecting that the information isn’t relevant to an issue in the case because state law requires that reserves be set, so the reserves don’t necessarily indicate any intent or subjectivity on the insurer’s part. Opposing counsel can counter that while the law dictates that reserves be set to cover losses, the law doesn’t say what the possible losses are or set the level of reserves, the insurer does. The insurer also usually claims work product privilege, which is sometimes denied on the basis that, because the setting of reserves is required by law, it is just a normal part of the business process and is not a litigation-related act. In Spirco, which was not a bad faith case, the court found that the reserve information was just relevant enough to qualify as work product (as an indication of the insurer’s belief about potential liability) but not relevant enough that the insured had shown an overriding need to have it.
On a side note, I wanted to provide a direct link to this case, but I didn’t find the case on the website for the U.S. District Court for the Eastern District of Missouri. The court does not seem to put memorandum decisions or unpublished cases on its site. Why not?