Summary:The Court granted AdvanSix's request to compel the production of insurance reserve figures by the Defendants, as it is relevant to the bad faith claim against them for their alleged failure to settle an insurance claim. The Court rejected the Defendants' arguments that reserve information is not discoverable in bad faith cases and ordered them to produce unredacted versions of the documents containing this information within seven days.
Court:United States District Court, D. New Jersey
Date decided:
Judge:Waldor, Cathy L.
Re: AdvanSix Inc. v. Allianz Global Risks US Ins. Co., et al Civil Action No. 2:21-cv-07962-MCA-CLW United States District Court, D. New Jersey Filed April 20, 2023 Counsel Kevin Vincent Small, Hunton Andrews Kurth LLP, New York, NY, for Plaintiff. Peter N. Billis, Foran Glennon Palandech Ponzi & Rudloff PC, New York, NY, for Defendant. Jonathan Michael Kinney, Dla Piper LLP (US), New York, NY, Peter N. Billis, Foran Glennon Palandech Ponzi & Rudloff PC, New York, NY, for Defendant. Waldor, Cathy L., United States Magistrate Judge LETTER ORDER *1 Counsel: This Letter Order shall address the parties’ dispute regarding Defendants’ redactions of insurance reserve figures. For the reasons stated below, the Court will grant AdvanSix's request to compel production of this information. “An insurance reserve is a pool of funds allocated to satisfy obligations that may arise under a claim.” Solano-Sanchez v. State Farm Mut. Auto Ins. Co., 2021 U.S. Dist. LEXIS 100337, at *5 (E.D. Pa. May 27, 2021) (quoting Peco Energy Co. v. Insurance Co. of N. Am., 852 A.2d 1230, 1232 n. 3 (Pa. Super. Ct. 2004)). AdvanSix asserts that Defendants’ reserve figures reflect Defendants’ estimate of AdvanSix's insurance claim and therefore is relevant to this matter; in particular, to AdvanSix's bad faith claim premised upon Defendants’ alleged failure to settle the insurance claim. Defendants disputes the reserves’ relevance. This presents a close question, as “District Courts within the Third Circuit are split on the question of whether reserves are discoverable in bad faith cases.” Id. (citing Consugar v. Nationwide Ins. Co., 2011 U.S. Dist. LEXIS 61756, 2011 WL 2360208, at *5 (M.D. Pa. June 9, 2011)). To this end, each party presents the Court with ample case law supporting its respective position. Notwithstanding the competing authority, under the circumstances, AdvanSix has the better argument. This is because the case law generally splits along the following lines: “when the bad faith claim is based on a denial of coverage and ‘does not involve the value of the claim or [the plaintiff's] estimation of liability ... the reserve information requested is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.’ ” Barnard v. Liberty Mut. Ins. Corp., 2019 U.S. Dist. LEXIS 18660, at *15 (M.D. Pa. Feb. 6, 2019) (quoting Executive Risk Indem., Inc. v. Cigna Corp., 81 Pa. D. & C. 4th 410, 2006 WL 2439733, at *5 & n.7 (2006) and citing cases). However, “reserves may be discoverable in a bad faith action when the claim relates to the insurer's failure to settle or where there is a discrepancy regarding the value of the claim.” Id. at *14 (citing cases). In other words, if a case involves solely the question of whether a loss is covered, then reserve information is irrelevant, as it would to do nothing to prove or disprove this issue. But where a case involves a damages enquiry or — as is the primary issue here — an insurer's alleged bad faith, then reserve figures are relevant. See, e.g., Solano-Sanchez, 2021 U.S. Dist. LEXIS 100337, at *6-7 (“Here, Plaintiff's claim for bad faith involves Defendant's failure to settle the claim because of a discrepancy regarding the value of the claim rather than an outright denial of coverage. Thus, the reserve information is relevant and should be produced. To the extent that Defendant's reserve for Plaintiff's claim is much larger than the amount it has offered Plaintiff in settlement, ‘a jury might reasonably infer, in the absence of some plausible explanation by the [Defendant], that [Defendant] was disregarding its obligation to deal reasonably with its insured.’ ”) (quoting Cicon v. State Farm Mut. Auto. Ins. Co., 2015 U.S. Dist. LEXIS 111104, 2015 WL 5021736, at *4 (M.D. Pa. Aug. 21, 2015)); Consugar, 2011 U.S. Dist. LEXIS 61756, at *15 (“The amount set aside for reserves provides some evidence of the value assigned by defendant to plaintiff's claim. Since plaintiff here claims that defendant acted in bad faith, a comparison between the reserve value of the claim and defendant's actions in processing plaintiff's claim could shed light on defendant's potential liability.”); U.S. Fire Ins. Co. v. Bunge North America, Inc., 244 F.R.D. 638, 645 (D. Kan. 2007) (agreeing with courts holding that reserve amounts “could, at the least, lead to admissible evidence relating to the Insurers’ ... good or bad faith in handling and investigating [the subject] claims”); N. River Ins. Co. v. Greater N.Y. Mut. Ins. Co., 872 F. Supp. 1411, 1412 (E.D. Pa. 1995) (reserve figures are “certainly germane to any analysis [defendant] made of its settlement value. This information, in turn, is relevant to the question of whether or not [defendant] acted in bad faith during the pretrial settlement negotiations.”). *2 This case falls squarely in the latter camp. AdvanSix's bad faith claim alleges, inter alia, that Defendants “refused to pay any undisputed amounts under the Policies, and ... failed to promptly settle any portion of AdvanSix's claim.” First Amended Complaint at ¶ 141.[1] Defendants raise several arguments in opposition, none of which compels a different result. As to the case involving an alleged failure to settle, they write that “ ‘[f]ailure to settle’ is a term o[f] art that refers to circumstances where a liability insurer is directing the defense of its insured, fails to settle a lawsuit against its insured, and exposes its insured to a judgement above its available policy limits.” ECF No. 167 at 5. They therefore attempt to cabin discoverability of reserves to such situations. This is incorrect; while some matters supporting AdvanSix involve such situations, most simply do not.[2] As to the case involving a question of valuation, Defendants write that “the disputed issues are: (1) the period of time for which the Defendant Insurers are obligated to provide coverage; and (2) the applicable deductible. Granted, the determination of these issues will affect the ultimate ‘value’ of AdvanSix's insurance claim—but not in the manner suggested by Solano-Sanchez and Consugar ....” ECF No. 167 at 5. Instead, Defendants contend, “these are coverage issues, not ‘value’ issues.” ECF No. 167 at 5. While creative, in the end this argument amounts to a bid to fit a square peg into a round hole; to accept Defendants’ logic would mean that all financial disputes entail pure questions of liability rather than damages. Defendants also heavily rely upon Mirarchi v. Seneca Specialty Ins. Co., 2011 U.S. Dist. LEXIS 80871 (E.D. Pa. July 22, 2011), a case distinct from the matters cited above in that the district court's decision (a denial of a request for reserve figures) was affirmed by the Third Circuit. See 564 F. App'x 652 (3d Cir. 2014). Defendants thus write Mirarchi is “binding.” ECF No. 167 at 6. However, Mirarchi is expressly non-precedential and non-binding, 564 F. App'x at 652, a fact Defendants conceded at oral argument.[3] Finally, at oral argument Defendants repeatedly stressed that the reserves should not be produced because they do not necessarily reflect Defendants’ valuation of AdvanSix's claim. But this is an evidentiary consideration, unrelated to the present question of discoverability. As aptly stated in Bunge N. Am., *3 [t]he Insurers’ arguments that reserves are not true evaluations of potential liability, based on the manner in which reserves are allegedly set, may go to the probative value or even the eventual admissibility of such information .... The fact that information might suffer some probative infirmities for some purposes, however, is not a sufficient ground for concluding that it is not discoverable. The Insurers remain free to argue at trial that reserve amounts should be inadmissible under FED. R. EVID. 403. At this stage of discovery, however, the relevance inquiry is broad enough to allow discovery of those amounts. 244 F.R.D. at 645 (cleaned up; citations omitted); see also Lipton v. Superior Court, 48 Cal. App. 4th 1599, 1616 (1996) (“The trial court's blanket preclusion of loss reserves discovery on the ground of a lack of relevancy was error. On the record before us, the conclusion that the requested loss reserve information might reasonably lead to the discovery of evidence admissible ... seems inescapable. Without doubt such information would assist Lipton in evaluating his bad faith case and in preparing it for trial. That is enough to justify discovery. Whether such information is sufficiently relevant to the precise issues which will be presented at trial to be admissible in evidence is another matter. That is not the question before us.”) (citations omitted). Finding the loss reserve information to be relevant, and Defendants’ arguments to the contrary without merit, the Court grants AdvanSix's request to compel production of such information. Defendants shall transmit to AdvanSix unredacted versions of the documents containing loss reserve information within seven (7) days of this Order. Footnotes [1] For their part, and as discussed below, Defendants’ answer includes affirmative defenses premised upon policy deductibles, which (despite Defendants’ argument to the contrary) ultimately present questions of valuation. See Answer, Second and Seventh Affirmative Defenses. [2] Defendants also attempt to distinguish Solano-Sanchez and Consugar as underinsured motorist claims where, “[w]ithout reserves information, the plaintiff would have had no information whatsoever regarding how the insurers had valued its claim”. ECF No. 167 at 4. Neither of these cases, however, provides this reasoning as grounds for its decision to grant reserves discovery. [3] Mirarchi is also distinguishable in that “Mr. Mirarchi focused his supplemental briefing almost exclusively on the issue of whether the information is protected by the work product doctrine, and essentially assumed that the information is relevant to his claim.” 2011 U.S. Dist. LEXIS 80871, at *3. By contrast, AdvanSix's briefing provides robust substantive support for its relevance argument.