SEPTEMBER 2006 BAD FAITH CASES RESERVE INFORMATION DISCOVERABLE IF RELEVANT TO AN ISSUE PRESENTED IN A BAD FAITH ACTION BY INSURER AGAINST RE-INSURER (Philadelphia Commerce)
Plaintiff reinsurance company contested its obligation to provide reinsurance coverage to Defendant insurer in connection with underlying lawsuits filed against the insurer. Defendant insurer counterclaimed for breach of contract and bad faith, and filed various discovery motions.
The Philadelphia Commerce Court allowed the insurer to obtain information concerning reinsurance as it concluded that such information could permit a determination about whether the reinsurance company acted in bad faith. The Court observed that reserve information could be discoverable if relevant to an issue presented in a bad faith action; and that reserve information is relevant to a bad faith claim based upon an insurer’s failure to settle based upon a dispute issue over the claim’s value or whether the insurance company made any reasonable settlement offer.
However, the issue presented in this case was whether the reinsurance company’s denial was based on a reasonable interpretation of the insurance policy. The Commerce Court held that the reserve information requested was neither relevant nor reasonably calculated to lead to the discovery of admissible evidence in that context, thus denying the insurer’s motion to compel reserve information.