Loss Reserve Information For Property Insurers Should Be Disclosed In Litigation—Reserve Information In a First Party Case Is Relevant and Not a Secret

Loss reserves are discussed and published in the media, and data freely exchanged until an insurance company is asked for it in a lawsuit. Once the lawsuit is filed, insurers pretend as if this information is something extraordinarily private and only told to a priest in a confessional. I suggest that insurers and their counsel are like Pinocchio, with long noses getting longer when making such absurd arguments preventing disclosure.

Here is a typical example of the public disclosure of loss reserves by a major re-insurer, as noted in Swiss Re Posts Q3 Loss on Hit From Hurricane Ian, Signals Price Hikes:

Swiss Re reported a third-quarter loss of $442 million driven by claims tied to the damage from hurricane Ian, and signaled that renewal prices would jump next year.

The Zurich-based reinsurer’s key unit saw $2.5 billion in claims related to large catastrophes including the storm which hit Florida last month, it said in a statement on Friday. It set aside an extra $700 million in reserves over the past twelve months to cover the impact inflation.

Yet, these same insurers, and their clever attorneys with growing noses, argue that these reserve statistics are irrelevant and should not be disclosed. Colorado precedent shows why this is wrong. The basic rule in Colorado is the following:

[T]he Court finds that reserves and settlement authority are discoverable in this first-party bad faith case, and Defendants should provide Plaintiff with un-redacted reserve and settlement authority figures.¹

The court explained why:

The weight of authority in this district, to include the Colorado Supreme Court, has found that reserve, settlement authority, and the liability and fault evaluations underlying those figures, is discoverable in first-party insurance cases alleging bad faith. Seaborn v. American Family Mut. Inc. Co., 862 F. Supp.2d 1149, 1158 (D. Colo. 2012) (‘Therefore, the court finds that evidence of reserves and settlement authority, or other ‘values’ applied to the claim in monetary terms, are discoverable in a case like this and Defendants may not redact such information from the claims and legal files produced pursuant to this Order.’); Turner v. State Farm Mut. Auto. Ins. Co., No. 09-cv-01926-CMA-KLM, 2010 WL 3239270, at *4 n.4 (D. Colo. Aug. 12, 2010) (‘In Silva, the Colorado Supreme Court found that evidence of an insurance company’s reserves and settlement authority is not discoverable in a third-party action against an insurance company. [ ] The present case is a first-party action against an insurance company and, therefore, this information is likely discoverable.’) (internal citations omitted); Bishelli v. State Farm Mut. Auto. Ins. Co., No. 07-cv-00385-WYD-MEH, 2008 WL 280850, at *3 (D. Colo. Jan. 31, 2008) (‘[T]he Court concludes that Defendant should produce its level of reserves set aside for this incident.’); Sunahara v. State Farm Mut. Auto. Ins. Co., 280 P.3d 649, 657-58 (Colo. 2012) (acknowledging that reserves, settlement authority, and liability assessments and fault evaluations underlying those figures, might be discoverable in first-party actions alleging bad faith); Silva v. Basin Western, Inc., 47 P.3d 1184, 1193 (Colo. 2002) (noting the scope of discovery has been traditionally broader in first-party disputes and stating: ‘In a first-party claim, the establishment of reserves and settlement authority could be relevant and reasonably calculated to lead to admissible evidence regarding whether the insurance company adjusted a claim in good faith or made a prompt investigation, assessment, or settlement of a claim.’).

My experience is that almost every property insurance adjustment, unlike third-party cases, requires the adjuster to estimate reserves that are the most accurate estimate of damage at the time the reserve is made. Indeed, this is the regulatory requirement as well. So, why don’t we require insurers to disclose these reserves all the time? They are clearly relevant in a first-party property damage claim.

I can tell you the truthful reasons why insurance defense attorneys refuse to turn it over: ‘Chip, if we turn that information over, it will tell you the honest amount our client thought the claim was worth, and we could lose the case.’ Those insurance defense attorneys hate to lose, even if the truth would require it. In an age of full disclosure in criminal cases to make certain the truth is found, we allow insurance defense attorneys in some civil courts to hide the truth about what their clients are doing. Bullshit!

Thought For The Day

Honesty is the best policy.
—Benjamin Franklin
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¹ Dale v. Country Preferred Ins. Co., No. 1:19-cv-01991 (D.Colo. Feb. 24, 2020).