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Public Policy Reason to Protect Disclosure of Reserve Information

By Brian Harris

There is a sound public policy rationale to protect disclosure of reserve information in discovery. This idea was brought to my attention by attorney Bryon Kaster of our Insurance Litigation / Bad Faith Discovery unit in Harrisburg. Simply stated, if an insurer were going to be compelled to disclose reserve information in bad faith cases, and if such information were going to be improperly used to argue it as an opinion on the part of an insurer as to the merits or value of an insurance claim, insurers will, no doubt, be tempted and encouraged to artificially set reserves lower, not higher, so that they more closely related to offers of settlement on claims they were making. They would do this for fear that discovery of this information would otherwise be used against them to demonstrate that they had, for example, made unreasonably low settlement offers.

A settlement offer takes into account a myriad of factors and reflects more accurately the insurer?s valuation of a claim than does reserve information, which takes into account only one:  worst case scenario. To use one as a means of learning the other is like using historical climate records in place of a thermometer to tell the temperature. It substitutes ?worst possible? for ?most probable,? and unless courts preserve the distinction, insurers will be wary of doing so also.

So what is the public impact of that? If done over a sufficiently long period of time, this could lead to one or more insurers and subsequently the entire insurance industry being undercapitalized to pay insurance claims. Carried to its logical extension, the unchecked discovery of insurance reserves and then misappropriation of their use could actually thwart the intended purpose of insurance reserving in the first place ? fiscal soundness and ability to pay claims. 

Thus, we see demonstrated a sound public policy reason protecting against the disclosure of insurance reserve information. If insurers know the information is protected from discovery in bad faith civil litigation, they will feel free to reserve at ?worst case scenario,? without fear of that being used against them in civil litigation to prove unreasonably low offers.  

Charles Haddick
Dickie McCamey & Chilcote
http://www.dmclaw.com

I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space.  Please e-mail me at chaddick@dmclaw.com.

Full post as published by The Legal Intelligencer Blog on October 15, 2010 (boomark / email).