In re American Bankers Insurance Company of Florida

Background

Walnut Creek, the plaintiff, and The Insurance Company of the State of Pennsylvania ("ICSOP"), the defendant, submitted a joint letter about whether loss-reserve information was discoverable. Walnut Creek had served Interrogatory No. 14, a related Request for Production No. 4, and an amended deposition notice seeking this information.

The interrogatory asked ICSOP whether it had set a reserve for the claim, the amount of the reserve, the date it was set, and the documents relied on in setting it. ICSOP objected that the interrogatory was compound, irrelevant, overbroad, unduly burdensome, and protected by attorney-client privilege or the work-product doctrine. The court sustained the objection that the interrogatory was compound.

The document request sought all documents, including complete claim files, relating to the underlying actions. ICSOP said it would produce nonprivileged portions of the claim file and would produce proprietary or confidential documents under a protective order, but it did not produce documents concerning reserve information.

Court’s analysis

The court rejected Walnut Creek’s reliance on California discovery law and its reading of Lipton v. Superior Court. It explained that discovery under the Federal Rules of Civil Procedure is narrower than discovery under the California Code of Civil Procedure. The court also stated that reserve information is not automatically relevant in a later bad-faith action; relevance depends on whether the information relates to the allegations supporting the claimed bad faith.

Walnut Creek argued that reserve information could show the claims handler’s state of mind when the claim was received, whether a potential for coverage existed, and what actions followed. The court found that Walnut Creek had not explained how the reserve information was potentially connected to its bad-faith theory. The court noted that this was the second discovery dispute concerning that theory and that the factual allegations still were not clear enough for the court to determine relevance. The court held that Walnut Creek had not met its burden under Federal Rule of Civil Procedure 26.

Disposition

The court sustained ICSOP’s objection to Interrogatory No. 14 and stated that ICSOP was not ordered to supplement its response to that interrogatory or produce loss-reserve documents in response to Request for Production No. 4. The court also encouraged the parties to try to resolve future disputes without court intervention.