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 question in Kanani was whether the pleadings in the particular case defined the issues in such a way that the particular question about reserves was relevant.
The takeaways are:
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- the relevance of reserve information requires a careful consideration of the particular facts and the issues arising from the particular case. It isn’t one size fits all.
- The connection between the setting of a reserve and bad faith conduct on the part of an insurer can be made only be in the rare and exceptional bad faith case, where there exist specific unusual facts sufficient to support such an allegation.
- The Plaintiff has the onus to provide sufficient evidence of unusual specific facts that make insurer’s reserves relevant.
- Adjusting a claim and setting reserves are not logically related or connected. Case law is clear that reserves do not relate to the process or manner in which the claim is assessed or adjudicated; these are a separate process and have very separate considerations.
- The duty of good faith relates to the way the insurer investigates, assesses and responds to the insured’s claim. It does not relate to the insurer’s internal task of setting a reserve.
- Absent exceptional circumstances, an insurer’s internal estimation of its monetary exposure regarding the risk is not pertinent to the insurer’s conduct in assessing and responding to a claim.
See Kanani v. Economical Insurance, 2019 ONSC 7201 (CanLII), http://canlii.ca/t/j4q4q
