Top Secret!: Insurers' Reserves And Plaintiffs' Thirst For Disclosure

In Kanani v. Economical Insurance, the plaintiff tried to compel the insurer to produce information about its reserves. The plaintiff sought retroactive attendant care benefits from the insurer.

The statement of claim contained allegations about how reserves were set in support of its bad faith claim. The plaintiff tried to rely upon this claim to justify disclosure about the reserve sums and rationale. The allegations of bad faith put the insurer's knowledge and state of mind in respect of adjusting attendant care in issue. The plaintiff argued that the reserves were connected to how the insurer adjusted its file, its knowledge and its state of mind. The insurer sought to strike the pleadings related to reserves from the statement of claim. Ultimately, the insurer was successful in withholding information about reserves and striking the pleading related to reserve information.

This case is a good primer on reserves: why we have them, what they are for, and how they are used. This case is also a good refresher on disclosure obligations, and the limits on pleadings.

Under the Insurance Companies Act, insurance companies are obliged to maintain adequate liquidity and capital and to quantify the liabilities of the company. The Ontario Insurance Act also imposes liquidity and liability reporting requirements. Insurers use reserves to quantify their liabilities and liquidity and to satisfy reporting obligations. Reserve amounts are a required mechanism to set aside funds to meet future obligations. Claim reserves are an estimate of the ultimate future cost of resolution and administration of claims. Reserves can be changed at any time and are continually updated.

With respect to relevance in civil actions generally, the scope of discovery is defined by the pleadings, and only those things that are relevant to the matters at issue are discoverable. Pleadings are the starting point for a party's disclosure obligations. The...