In Mandarin Oriental, Inc. v. HDI Glob. Ins. Co. et al., Civil Action No. 23 Civ. 4951, 2025 WL 1638071 (S.D.N.Y. June 10, 2025), the District Court of the Southern District of New York followed the modern trend and allowed discovery of reserve and reinsurance information in coverage litigation with allegations of bad faith.
Facts
The insured’s claim arose out of business interruption losses due to a shutdown of its business during the COVID-19 pandemic. The policy contained an endorsement which provided coverage for loss resulting from an interruption of business as a consequence of an infectious or contagious disease of any person while on premises or within a 5-mile radius of the premises. Insurers failed to provide a formal coverage position to the insured, which prompted the instant lawsuit in which the insured presented four disputed issues: 1) the trigger of coverage under the endorsement; 2) the number of occurrences; 3) the applicable period of recovery; and 4) whether insurers acted in bad faith. During the litigation, the insured filed a motion to compel seeking certain reserve and reinsurance information that was withheld on the grounds of privilege and relevance by the insurers.
Analysis
The district court overruled insurers’ objections permitting discovery of both reserve and reinsurance information given the allegations of bad faith during the adjustment of the claim. As to the reserve information, the court noted the information is relevant given insurers’ failure to provide the insured with a formal coverage position as such information could show insurers’ position on coverage and liability. The court reasoned that reserve information may provide insight into insurers’ beliefs and motivations about coverage and the risks of insuring the property. In addition, after conducting an in camera review, the court also overruled the insurers’ objections to produce reserve information on the grounds of the attorney client privilege and work product doctrine. The court held that because the reserves were set in the ordinary course of business, the information is not privileged simply because outside counsel was involved. As to reinsurance, the court found the information to be relevant because such information could “shed light” on insurers’ internal evaluations of their coverage obligations. The court further noted that reinsurance communications could reflect insurers’ understanding of the risk that the claims posed, the merits of the insured’s claim, and the likelihood of coverage.
Conclusion
As demonstrated in Mandarin Oriental, courts are seemingly following a modern trend and permitting the discovery of reserve and reinsurance information in coverage litigation, especially when bad faith allegations have been asserted. It is important to note, however, that insurers failed to provide a definitive coverage position to the insured in this case, which could provide a basis on which to distinguish this sweeping ruling on reserve and reinsurance information from cases in which the insurer issued a coverage position to the insured prior to litigation.
