Pushing Back on Insurer’s Refusal to Produce Reserve Information

First, a quick definition: A claim reserve is a reserve of money set aside by an insurance company in order to pay policyholders’ claims under their policies. Reserves are set by the insurance company in an amount that it anticipates having to pay out for the claim. Reserve information is important because it can show that the carrier undervalued the claim and never had the intent to pay the reasonable and necessary cost to repair the loss.

Despite being required by law to do so, homeowners’ insurers often improperly redact reserve information when producing claim file materials in litigation. Insurers also often to attempt to thwart an insured’s access to reserve information by objecting to deposition topics related to reserves. It is only when pressed that some carriers, whose counsel is aware of their untenable position, will concede and produce unredacted reserve information.

The Eastern District of California recently ruled on several discovery issues in a bad faith action involving a water loss. In Banga v. Ameriprise Auto Home Ins. Agency, No. 2:18-cv-01072-MCE-AC, 2021 WL 634955 (E.D. Cal. Feb. 18, 2021), a homeowner brought a bad faith action against her insurer after a dispute over insurance coverage for water damage to her home. As a result of high windstorm, the roof of the insured’s house was damaged, causing leakage that further damaged the interior walls and the vaulted ceiling of the house.

The insurer’s independent adjuster inspected the damages and prepared an estimate for $3,853.10. However, despite the homeowner’s repeated efforts and communications with her insurer, the homeowner was unable to find a general contractor who could do the work for that price. Instead, the homeowner retained a contractor who prepared an estimate for $11,622.24. After the homeowner’s multiple attempts at contacting her insurer, the insurer finally responded and demanded another inspection. The homeowner notified her insurer that a new inspection was not necessary because she was not claiming any additional damages. She thereafter requested the name of arbitrators so that she could choose one to resolve the matter, but her insurer did not respond.

The homeowner then sued Ameriprise and IDS Property Casualty Insurance Company (“IDS”) for multiple claims, including breach of contract, bad faith, unfair & unlawful business practices under California’s Unfair Competition Law, intentional misrepresentation, negligent misrepresentation, and intentional/negligent infliction of emotional distress.

During the course of litigation, a discovery dispute arose regarding the plaintiff’s request for production of documents and deposition. IDS had produced the claim file and privilege log but redacted and withheld all reserve information. The court granted the plaintiff’s motion insofar as IDS was obligated to produce reserve information for the period prior to the date the plaintiff had filed her lawsuit. The plaintiff had also served a deposition on the “person most knowledgeable about how, when and what claim reserves are to be set as well as all claims reserves that have been set by IDS or on its behalf concerning the claim of Banga to the present providing all policies and procedures to be utilized and followed for establishing claim reserves.”

IDS requested that the court limit the scope of this topic to the reserves IDS set during its handling of plaintiff’s claim prior to the litigation, and IDS’s procedures for setting reserves for homeowner’s water damage claims. IDS argued that reserve information post-litigation was protected by attorney client privilege and attorney work product doctrine, and was also irrelevant.

While the court agreed that the post-litigation reserve information was irrelevant because the plaintiff’s entire complaint was based on conduct prior to her filing suit, it did not opine on whether the post-litigation reserves were privileged. The court found that the plaintiff was unable to articulate how reserve information post-filing was related to her claim. Accordingly, the court held that IDS was required to produce a person most knowledgeable regarding the pre-litigation claim reserves.

At Kantor & Kantor, we often bring lawsuits on behalf of homeowners whose claims have not been resolved, such that the claim files have not been closed. In those instances, post-litigation reserve information is arguably relevant. This will show whether the insurer increased its reserve value for the claim in light of the fact that it has been sued.

So long as the reserve information being sought is limited to the claim reserves itself, and not the litigation reserves, post-litigation claim reserve information for ongoing claims is arguably relevant and discoverable.

If you find yourself in a similar situation, or have had trouble dealing with your insurance company regarding your homeowner policy, please call Kantor & Kantor for a free consultation at 800-446-7529 or use our online contact form.

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