AUGUST 2011 BAD FAITH CASES JUDGE ORDERS IN CAMERA REVIEW OF INSURER’S LOSS RESERVES DOCUMENTATION AS POTENTIALLY RELEVANT TO INSURED’S BAD FAITH CLAIM (Philadelphia Federal)
The insured filed a claim with the defendant insurer after a fire damaged his pizzeria.
After Seneca denied coverage, plaintiff sought to compel the insurer to produce un-redacted documentation of its claim investigation. Specifically, the information sought by the plaintiff concerned the defendant’s setting of loss reserves, a process which the insurer argued is protected from disclosure by the work product doctrine. The insurer also contended that such information need not be disclosed because it is irrelevant to the resolution of plaintiff’s bad faith claim.
The court first struck down Seneca’s work product defense, as it found that the requested documentation was neither prepared by attorneys (or their agents) nor prepared in anticipation of litigation but was instead created within the ordinary course of the insurance business.
The court then addressed whether Seneca’s loss reserves were sufficiently relevant to the action’s subject matter to be discoverable, including a lengthy discussion of the nature of setting reserves.
Typically, the court noted, loss reserve information is irrelevant and thus undiscoverable. However, such information is more likely to be discoverable in bad faith cases because it can illustrate discrepancies, if any, between what the insurer believed the claim to be worth and what it actually ended up paying out to the insured. Still, the court took care to note that even in bad faith cases, the relevance of loss reserve information is not a foregone conclusion.
The court concluded: “However, the facts considered in setting the reserve amount may potentially be relevant to [the insured]’s bad faith claim. For instance, to the extent that employees or agents of Seneca discussed the value of [the insured]’s claim or other factual information regarding the claim in connection with setting the reserves, such information may potentially be relevant to [the insured]’s claim of bad faith. Thus, the Court will order Seneca to produce unredacted copies of the non-privileged documents provided to the Court for in camera inspection to the extent that those documents contain information other than specific amounts set for loss reserves. The Court cautions that this ruling in no way implies that such information will be admissible at trial.”
Date of Decision: July 22, 2011
Mirarchi v. Seneca Specialty Ins. Co., Civil Action No. 10-3617, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 80871 (July 22, 2011) (Pratter, J.)