Corporate Insurance Blog

If you represent policyholders, you’ve heard it countless times from opposing counsel: reserves information is not relevant, and it won’t be produced. And if you represent insurance companies in coverage disputes, you’ve probably repeated it like it’s gospel. Similar arguments are made for other policyholder information: insurers refuse to produce such information, arguing that it’s too burdensome to produce or irrelevant. Case law on the issues is mixed, so it often helps to turn to the facts and the contentions of the parties when moving to compel this information on behalf of policyholders.

Contrary to what their coverage counsel assert in litigation, the insurance companies themselves have made public statements demonstrating that such information is relevant and easily collected. One outstanding resource for this information is the SEC filings made by publicly traded insurance companies. Particularly in the context of latent injury claims, these public statements often refute many, if not all, of insurer-side coverage counsel’s assertions that reserves are not relevant to the coverage dispute at hand, or that it’s too difficult to gather information on other policyholders.

Consider a typical asbestos coverage dispute. In such an action, both sides dispute the meaning of numerous terms, often in standard form insurance policies, or, even if manuscript policies, standard form terms and definitions that were not modified for the particular policyholder. Insurers analyze that exact information in the ordinary course of their business, and they do this a regular basis. They discuss the analyses in detail in their public filings. For example, consider AIG’s Form 10-Q  for the second quarter of 2008, dated August 6, 2008. On page 65 of that filing, AIG reveals that when it sets reserves* for asbestos claims, it engages in a “comprehensive ground-up analysis.” That phrase is telling – it means that AIG considers, in detail, its accounts (i.e., other policyholders) with asbestos liabilities, and studies them to determine the appropriate reserves. As the discussion in the Form 10-Q is a bit limited, AIG refers to its 2007 Form 10-K where additional detail is provided. The 2007 Form 10-K explains, at page 60, that AIG’s “[g]round-up analyses take into account policyholder-specific and claim-specific information that has been gathered over many years from a variety of sources.” In that same filing, at pages 59 and forward, AIG discusses its reserving process for asbestos and environmental claims. AIG explains that its management “continually review[s] and update[s]” its reserves for such claims, which is a tip-off to the types of AIG personnel who are involved with such decisions (helpful when considering depositions) and that the decisions are made in the ordinary course of business (helpful when refuting assertions that reserves are privileged).

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*A reserve is a “provision to satisfy obligations as of a specified date.” See, e.g., Actuarial Standards Board, Actuarial Standard of Practice No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves (Mar. 2000), at 3.  Reserves must meet IRS standards and be reasonable in light of the insurance company’s obligations. See, e.g., Physicians Ins. Co. of Wisconsin, Inc. v. C.I.R., T.C. Memo. 2001-304, 82 T.C.M. (CCH) 918, T.C.M. (RIA) 2001-304, 2001 RIA TC Memo 2001-304 (U.S. Tax Ct. 200).

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More significantly, AIG explains that its personnel “evaluate . . . asbestos and environmental claims utilizing a claim-by-claim approach that involves a detailed review of individual policy terms and exposures.” AIG performs such a review of “[e]ach claim . . . at least semi-annually.” Indeed, “AIG staff produced the information required at policy and claim level detail for nearly 1,000 asbestos defendants. This represented over 95 percent of all accounts for which AIG had received any claim notice of any amount pertaining to asbestos exposure.”

Read that again: AIG staff gathered and analyzed information on over 1,000 policyholders! If AIG can review all its claims on a claim-by-claim approach in the ordinary course of business, for reporting purposes, can it really be unduly burdensome for AIG to produce even just a fraction of that information on other policyholders in the context of a multi-million dollar lawsuit? As AIG is not the only P&C insurer that engages in such reviews, insurers’ protests that requests for information relating to other policyholders – often limited to reasonable numbers, such as twenty other policyholders – is too burdensome, their public disclosures suggest otherwise.

Finally, consider the types of analyses that insurance companies perform when setting reserves for latent injury claims. Again, using AIG as the example, when setting those reserves, AIG “generally evaluates exposure on a policy-by-policy basis, considering a variety of factors such as known facts, current law, jurisdiction, policy language and other factors that are unique to each policy.” For “each significant account [,] . . . AIG’s claim staff [examined the analysis] for reasonableness, for consistency with policy coverage terms, and any claim settlement terms applicable.”

Isn’t that what is at issue in a coverage case: the meaning of “policy coverage terms?” When arguing about the propriety of discovery that is granted beyond the eight corners of the complaint and the policy, these disclosures should suggest that relevant information exists, is created in the ordinary course of business, and would not be too burdensome to produce.