Court Clarifies the Discoverability of Loss Reserves and Reinsurance Information

Isilon Systems, Inc. V. Twin City Fire Ins. Co. (W. D. Wash. February 15, 2012)

Plaintiff, Isilon Systems, Inc. (“Isilon”) brought a motion to compel arguing that Defendant, Twin City Fire Ins. Co. (“Twin City”) wrongfully withheld and redacted numerous documents based on meritless claims of privilege and attorney work product.  Isilon also alleged that Twin City’s privilege logs were inadequate, and took exception to Twin City’s position that information about loss reserves and reinsurance was not discoverable.

In response, Twin City argued that information about loss reserves is not relevant to bad faith claims because a reserve does not equate to an admission of liability or the value of a particular claim.  Furthermore, Twin City argued that reinsurance information is generally not discoverable and that the redacted portions of its Claim Summary Report were protected by attorney-client privilege and attorney work product doctrine.

The court determined that Twin City’s privilege and redaction logs did not meet the standards of Federal Rule 26(b)(5)(A)(iii).  According to the court, the logs included very brief descriptions that failed to provide any factual or legal explanation for why privilege was asserted, and were therefore insufficient to enable the opposing party, or the court, to assess the validity of the claimed privilege.

On the issue of loss reserves, the court noted that insurance reserves are generally relevant in a bad faith case against insurance companies.  Notwithstanding this precedent, Twin City argued that in a diversity case governed by the Federal Rules of Evidence, loss reserves information is not relevant because the reserves represent nothing more than an accounting decision made by persons without actual knowledge of the policies involved.

The court determined that in the present case, loss reserves decisions were in fact made by members of Twin City’s upper management with knowledge of the actual policies involved. Thus, the general rule establishing the relevancy of insurance reserves was applicable, and the court ordered Twin City to turn over all materials withheld or redacted relating to loss reserves.  The court noted, however, that while aggregate reserve information is not protected as attorney work product, individual case reserves calculated by defendant’s attorney may be.

Finally, with respect to reinsurance, the court noted that reinsurance polices themselves are discoverable under Federal Rule 26(a)(1)(D).  However, this rule does not extend to communications between the insured and the reinsurer regarding the reinsurance policies.  Thus, in the present case, the court held that while Twin City must produce all reinsurance policies themselves pursuant to Federal Rule 26(a)(1)(D), Twin City does not have to produce other reinsurance documents unless Isilon presents a basis for the relevance of such documents.

A copy of the decision can be found here

Jeffrey Kingsley and Matt Cabral

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