In May, we reported on a Third Circuit decision holding that loss reserve information was generally irrelevant and not discoverable. In October, a federal court in Indiana came to the same conclusion with respect to post-suit reserves. In G & S Metal Consultants, Inc. v. Continental Casualty Co., 2014 WL 5431223, 2014 U.S. Dist. LEXIS 151431 (N.D.Ind., Oct. 24, 2014), the court agreed that reserves established after litigation were irrelevant because of the multiplicity of factors that were necessarily considered in establishing them. The opinion suggests that pre-suit reserves are discoverable unless they have been set in anticipation of litigation and consultation with counsel, however.
G & S Metal Consultants filed suit for property damage and business interruption loss after a steam explosion at a Georgia facility. After discovery was complete, the insurer, Continental Casualty, successfully sought permission to file an amended answer asserting additional affirmative defenses and a counterclaim based on alleged misconduct by G & S during the claim adjustment process that it had allegedly learned of during discovery, and the court reopened discovery to allow the policyholder to defend against the counterclaim. The insured then sought to question the carrier’s 30(b)(6) designee about reserves, and it filed a motion to compel after Continental’s attorneys objected to that line of questioning.
On October 24th, the court denied the motion. Judge Paul R. Cherry’s opinion distinguished between loss reserves set during the claim adjustment process and loss reserves set during litigation. With respect to the latter, he held that such information was essentially irrelevant because there were simply too many factors involved in the carrier’s decisions. As he explained:
The Court finds that any change in the loss reserves since the lawsuit was filed . . . would not provide an identifiable correlation between Continental’s knowledge at the time of any changes (or lack of changes) to the loss reserve during this litigation and the knowledge that Continental had during the claim adjustment process prior to this lawsuit when loss reserves were first established. Multiple factors affect the adjustment of loss reserves during the course of litigation in addition to information obtained during discovery, such as litigation strategy, the potential for settlement, developments in the litigation, and the possibility of a favorable or unfavorable judgment. G & S has offered no explanation of how the movement of the loss reserves could lead to admissible evidence.
With respect to the claim adjustment process, however, Judge Cherry’s opinion was somewhat more nuanced. His decision held that “once litigation is anticipated, loss reserves are protected by the work product doctrine when there is evidence that the loss reserves were established or adjusted in consultation with counsel in anticipation of or during the litigation.” Prior to the anticipation of litigation, however, the court noted that cases such as Compton v. Allstate Property & Casualty Ins. Co., 278 F.R.D. 193 (S.D.Ind. 2011) had held that there was “no basis for finding the information wholly irrelevant or for finding that the burden of revealing the information . . . outweighs any potential relevance.” G & S’s request for pre-litigation loss reserve information was nonetheless denied because discovery had already closed with respect to all matters save the counterclaim asserted during litigation. As Judge Cherry’s decision explained:
To the extent that pre-litigation loss reserves may be discoverable generally, their only usefulness at this stage of discovery on the Counterclaim would be as a basis for comparison for any change in the loss reserves during litigation. Because the Court has found that loss reserves established or adjusted during this litigation are not relevant, there is no basis at this stage in the litigation to compel Continental to disclose pre-litigation loss reserves in the context of discovery related to the Counterclaim.
