In Ockford v. Encompass Ins. Co., No. 24-1581, 2024 WL 4437820 (E.D. Pa. Oct. 7, 2024) (Hey, USMJ), a U.S. Magistrate Judge overstated the legal proposition behind discovering reserves in a UIM or underinsured motorist coverage case involving Pennsylvania substantive law and a bad faith claim. Federal law governed work product issues and Pennsylvania law governed bad faith issues in this case.
Here is what the Magistrate Judge said initially:
The determination of whether reserve information is discoverable in a bad faith case depends on whether the bad faith claim arises from a denial of coverage or the valuation of the claim. “[W]hen the bad faith claim is based on a denial of coverage and ‘does not involve the value of the claim or [the plaintiff's] estimation of liability ... the reserve information ... is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.’ ” [Citations omitted.]
Ockford, 2024 WL 4437820, at *3.
Actually, the determination of whether reserve information is discoverable in a bad faith case depends on more than simply whether the bad faith claim is based on a denial of coverage or an incorrect estimate of value, i.e., of damages, as the Magistrate Judge recognized in the very next sentence of the opinion in this case:
However, when the claim relates to the insurer’s failure to settle or involves a discrepancy in the valuation of the claim, the reserves are relevant and may be discoverable.
Ockford, 2024 WL 4437820, at *3 (emphasis added). The determinative feature, then, of discoverability of reserves in a bad faith case is whether “the claim relates to the insurer’s failure to settle,” which the Magistrate Judge naturally enough equated with “the valuation of the claim” in this UIM case.
She ruled in this case that the reserves information is discoverable:
Because Plaintiffs bring a bad faith claim based on the valuation of their claim, I find that the reserves are relevant and discoverable and not shielded by the work product doctrine.
Ockford, 2024 WL 4437820, at *4.
Decided case law concerning Discovery of Reserves on First-Party Claims like Ockford is discussed in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 12:16 (Thomson Reuters West Publishing Company 3d Edition & 2024 Supplements).
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