abstract background

Insurers’ right to reserve their reserves

Publication January 2020

In a recent decision, Kanani,1  the Ontario Superior Court of Justice dismissed motions to compel an insurer to produce notes and information regarding the insurer’s reserves. The court found that the setting of reserve amounts was adequately removed from the process of adjustment and assessment of an insurance claim and was not relevant or material to the action, which centered on claim and benefits assessment.

Background

The plaintiffs brought a claim against Economical Mutual Insurance Company alleging it breached its duty to act in utmost good faith, and sought retroactive and ongoing attendant care for two caregivers.2

The plaintiffs brought motions seeking the disclosure of Economical’s internal notes, documents and reports pertaining to reserves.3 The plaintiffs’ position was Economical had sufficient information that benefits for the attendant caregivers should have been paid out. They argued the reserve documents would reveal Economical’s information and considerations with regard to present and future benefits, including attendant care.

Notably, the plaintiffs did not specifically allege that the reserves were set in bad faith.

Relevance of reserves

Justice Nadeau held that Economical’s reserve information was not relevant to the matters at issue in the action, and dismissed the plaintiffs’ motions.

Reserves are estimated amounts which are meant to account for all possible future payouts on claims, as well as legal costs and other related expenses. Reserves must be maintained for all open claims, as well as claims that may be re-opened or not yet reported.4

The court cited Osborne5 and affirmed that in the absence of unusual circumstances, the level of reserves set by an insurer will be irrelevant and immaterial to a benefits claim.6 In order to compel an insurer to produce documents regarding reserves, the court must conduct a contextual analysis and be satisfied there is “sufficient evidence of ‘specific unusual facts’ that make the insurer’s reserves pertinent” to the action.7

In this case, the plaintiffs did not make any allegations of misconduct in Economical’s setting of reserves and failed to provide evidence it had any impact on Economical’s assessment of the insurance claim.8 The court found that the plaintiffs conflated the setting of reserves with the insurer’s analysis and assessment of a claim, and that the setting of reserves was a separate and unrelated process to the assessment of a claim. The court also noted that disclosing reserve information in this case would be highly prejudicial to Economical and outweigh its limited probative value.9

Take-away

Kanani establishes that insurers are not under a general obligation to produce information regarding reserves in actions centered on an insurance claim, even where bad faith is alleged. Instead, plaintiffs must plead specific allegations, supported by evidence, that the setting of reserves is relevant and material to the action. Even then, disclosure of such documents would only be ordered if it has a higher probative value than the prejudice it would cause to defendants.

Insurers should take care not to reveal reserve information and to promptly retain coverage counsel to defend against claimants requesting reserve information. Reserves are generally not relevant to actions regarding claim assessments and reserve information could have a significantly prejudicial effect on insurers at trial.

While Kanani centered on insurance benefits for attendant caregivers, the decision applies to reserve amounts across all insurance policy areas.

The authors wish to thank articling student Qasim Kareemi for his help in preparing this legal update.


Footnotes

1   Kanani v Economical Insurance, 2019 ONSC 7201 [Kanani].

2   Kanani at para 3.

3   Kanani at para 2.

4   Kanani at paras 15-17.

5   Osborne v Non-Marine Underwriters, Lloyd’s London, [2003] OJ No 5500 (SCJ) [Osborne].

6   Kanani at para 26, citing Osborne at para 14.

7  

Kanani at para 27.

8   Kanani at para 27.

9   Kanani at para 28-29.



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