• COURT ADDRESS DISCOVERY OF RESERVES, SETTLEMENT AUTHORITY, CLAIMS MANUALS, AND THE RULES FOR ORGANIZING DOCUMENT PRODUCTION (Philadelphia Federal)
  • September 13, 2017
  • This case involved the adjustment of a fire loss claim. The insurer made over $1 Million in payments during a two-year period. The insured brought a bad faith action over claims handling and payment during that two-year period. This opinion addresses the insured’s motion to compel discovery.

    Once the party seeking discovery meets its initial burden by showing relevance, “the burden then shifts to the party opposing discovery to articulate why discovery should be withheld.” “The party resisting production must demonstrate to the court ‘that the requested documents either do not come within the broad scope of relevance defined pursuant to Fed. R. Civ. P. 26(b)(1) or else are of such marginal relevance that the potential harm occasioned by discovery would outweigh the ordinary presumption in favor of broad disclosure.’”

    1. Organization of Document Production

    3,200 pages of documents were provided on an unsearchable pdf. The plaintiff objected that the documents were not as kept in the usual course of business or referenced to particular document requests. The insurer responded they were provided as kept in the ordinary course of business. The Court stated that “the producing party has the choice to either produce documents as they are kept in the ordinary course of business or to label them to correspond with the request categories.” Thus, “labeling is not required where the party otherwise complies with the rule by producing the documents as they are kept in the normal course of business.”

    The Court accepted the insurer’s “representation that the documents were produced as kept in the usual course of business.” The insurer offered “some narrative explanation of what was produced, and how it was produced.” The Court would not require the insurer “to label the documents to correspond to [the] requests,” where it had “sufficiently described its document production as containing emails, claims notes, and correspondence—all of which are pieces of the entire file that Plaintiff requested.” In asserting that the documents were “not produced … as kept in the usual course of business,” the insured’s argument was “devoid of any particularized factual basis for this claim.” Thus, this aspect of the motion to compel was denied.

    1. Discovery of Reserves and Settlement Authority

    The Court first observed the split in authority on discovery of reserves. It “ordered in camera inspection of the loss reserves ‘to the extent that those documents contain information other than specific amounts set for loss reserves.’”

    The Court stated that “the reserve information may be relevant to Plaintiffs bad faith claim based on the timeline of this case. For instance, Plaintiff alleges that Defendant insisted on a release before issuing payments because Defendant knew it was offering less than what it owed; that Defendant knowingly delayed the payment of claims to save money and to injure Plaintiff; and that the release is invalid.” The Court cited authority for the proposition that “reserve information relevant to whether insurer acted in bad faith in not settling case within policy limits before trial” could be discovered. “Accordingly, to the extent employees or agents of the company discussed the value of Plaintiffs claim or other factual information regarding the claim in connection with setting the reserves, such information may be relevant.” Still the Court did not order direct production of previously redacted material, but ordered the insurer to “produce unredacted copies of the reserve and settlement authority information to the Court for in camera inspection.”

    1. Discovery of Claims Manuals

    “Courts within this district have found that limited portions of claims manuals are relevant in bad faith insurance cases.” The Court observed thatEastern District Judges “have typically found that information contained in claims manuals is discoverable to the extent that it concerns employee procedures for processing claims.”The insured sought “[t]he portion of the claims manual regarding any portion of the Policy relied upon by you in making a coverage decision on plaintiff’s claim.” The specific bad faith claim involved the manner and timing of payment. The Court found the document request overly broad, and that it went further than the bad faith claim as asserted. The Court did disagree with the insurer’s argument that discovery can only be permitted for a total denial of coverage. The Court limited the document request “to include only portions of the claims manuals that discuss policies relating to valuation of claims, and the timing of claims payments.”

    Date of Decision: August 9, 2017

    Bala City Line, LLC v. Ohio Sec. Ins. Co., CIVIL ACTION No.: 16-cv-4249, 2017 U.S. Dist. LEXIS 126579 (E.D. Pa. Aug. 9, 2017) (Sitarski, M.J.)