Third Circuit Says No to Insured’s Request for Reserve Information

In a victory for insurers, the United States Court of Appeals for the Third Circuit recently rejected an insured’s discovery request for reserve information in a first-party bad faith action.  In its April 29, 2014 decision in Mirarchi v. Seneca Speciality Insurance Company, — Fed.Appx. —, 2014 WL 1673748 (3d Cir., April 29, 2014), the Court of Appeals upheld the district court’s denial of the policyholder’s request for the reserves and, in doing so, endorsed  the numerous district court decisions that have previously held such information to be non-discoverable.

In Mirarchi, a fire damaged the insured’s property.  The insurer paid the entire undisputed amount, and the parties proceed to appraisal on the remainder of the claim.  An umpire entered an award close to the amount sought by the policyholder, and the carrier paid.  Thereafter, however, the insured filed an action against the insurance company in federal court, asserting that the insurer had delayed payment in bad faith, and he requested discovery of the company’s reserve information.  Seneca Specialty refused to provide the requested information, and the district court held that it was not obligated to so so.  The trial court subsequently dismissed the bad faith claims in their entirety, noting that the insurer had paid the undisputed amount despite the lack of any contractual or legal obligation to do so and further that the insurer, in valuing the claim lower than the appraisal award, had relied on reasonable expert opinions.

Late last month, a unanimous Third Circuit panel upheld the trial court’s decisions on appeal.  In affirming the ruling that the insurer did not have to produce reserve information during discovery, the Court of Appeals agreed with the district court that “a loss reserve is the insurer’s own estimate of the amount which the insurer could be required to pay on a given claim,” and “[does] not represent an evaluation of coverage based upon a thorough factual and legal consideration[.]” (emphasis in original)  Judge Thomas L. Ambro’s opinion also agreed with the district court that loss reserve figures are generally irrelevant and not discoverable.  Id.

Although not reported, the Mirarchi decision is important for insurers because it provides support for the position that discovery demands for reserve information are improper even in instances in which the insured has pled a cause of action for bad faith.  Under Mirarchi, such information is proprietary and thereby irrelevant and non-discoverable.