One common area of discovery disputes in insurance-coverage cases concerns reserve information from carriers. The policyholder-side thinking goes that it is inconsistent with the insurer’s flat denial of coverage for it to accrue a reserve on the claim, especially a reserve at close to full value. There is some logical and emotional appeal to this “putting your money where your mouth is” discovery, that is, requiring that what the carrier says to the jury be consistent with where it is putting its money.
Of course, a reserve accrued on the claim doesn’t prove conclusively there is coverage: carriers argue that reserves simply reflect litigation risk or that statutory requirements re solvency compel the accrual of reserves – points that go to the weight of the evidence. Carriers are concerned that reserve evidence is prejudicial to their coverage denial in the eyes of jurors (because a reserve seems to be an implied admission of coverage or at least the reasonable possibility of coverage), and so carriers tend to fight assiduously to prevent reserve information from coming to light.
The Supreme Court of West Virginia recently weighed in on the issue, West Virginia ex rel Erie Ins. Prop. & Cas. Co. v. Mazzone (W. Va. Nov. 30, 2005). In Erie, the carrier resisted discovery on the grounds that reserves reflected opinion work product. The court did not reach the question but instead ruled on the more preliminary issue of the relevance of reserves. The court’s discussion of the reserve-setting process in general seems to cast substantial doubt that a viable work-product objection will lie, though the court did not rule this out; more important, the court implies that reserves are of dubious relevance.
While ruling that reserves potentially were discoverable and rejecting the no-discovery rule urged by the insurer, the West Virginia high court directed trial courts to analyze concretely the pertinence of reserve information for the particular case, but with a thumb on the scale against discoverability. As the case syllabus states:
In making a determination in the context of discovery about the relevancy of insurance reserves information, the trial court should take into account the nature of the case, the methods used by the insurer to set the reserves and the purpose for which the information is sought, and only grant requests for disclosure when its findings of fact and conclusions of law support a determination that the specific facts of the claim in the case before it directly and primarily influenced the setting of the reserves in question.
The court did not reject the policyholder position about “implied admission of coverage,” so a policyholder still will be able to argue that reserves indicate the carrier actually believes there is coverage (thus showing the relevance of this discovery); but the court was skeptical that reserves in fact shed light on the question whether coverage is owed.
Ironically, the closer to an implied admission of coverage that a reserve determination becomes the more substantial an insurer’s claim of work product would seem to be. The further reserve setting moves away from the merits of the case, the less probative the reserve would seem to be (and concomitantly the less compelling the work-product claim). (Some of these points are developed in the lengthy concurring opinion of Justice Davis filed a week after the majority opinion in Erie was issued.) In other words, the Erie case shows that the claims both of relevance (by the policyholder) and of work product (by the insurer) are directly correlated.