Insurers' Right To Reserve Their Reserves

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...