§ 12.10 Reserves

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 12.10 Reserves

The federal district court has explained that "most courts agree that reserve information is irrelevant in the context of a coverage dispute."¹⁰⁶ However, the court also recognized that there was a split in the courts regarding whether information regarding the insurer's reserves would be relevant in a case involving allegations of bad faith.¹⁰⁷ In determining whether reserve information would be required to be produced, the court reasoned:

The determination of the relevance of reserve information depends on the circumstances of each case, and is particularly influenced by whether the case presents a first-party or third-party claim of bad faith. South Carolina courts have found that a claim against an insurance company for bad faith requires an examination of the evidence before it at the time it denied the claim or, if the insurance company did not specifically deny the claim, the evidence it had before it at the time the suit was filed. Howard v. State Farm Mut. Auto Ins. Co., 316 S.C. 445, 448, 450 S.E.2d 582, 584 (1994). The fact that the insurance company established a reserve may be probative on the issue of whether there is a potential for liability in considering a third-party bad faith claim, and thus reserve information may be relevant to the issue of bad faith. See Spearman Indus., Inc. v. St. Paul Fire and Marine Ins. Co., 128 F. Supp. 2d 1148, 1154 (N.D. Ill. 2001) (citing Am. Prot. Ins. Co. v. Helm Concentrates, Inc., 140 F.R.D. 448, 449-50 (E.D. Cal. 1991)). "On the other hand, in first-party insurance, the policy either provides coverage or does not. Thus, the potential for liability - and therefore reserve information - is irrelevant to a bad faith claim. Rather, in first-party insurance, the insurer's good faith is determined (1) by the manner and depth of its investigation, and (2) the determination of whether there was a good faith factual or legal question as to whether the loss was covered." Id.¹⁰⁸

Therefore, the court determined that when the issue in the case focused on the decision to deny the claim as opposed to a dispute over the amount of potential liability the reserve information was not relevant and denied the insurer's request for the information.¹⁰⁹

However, the federal district court in ContraVest Inc. v. Mt. Hawley Insurance Co.¹¹⁰ determined that based on the facts of that case, the reserve information was determined to be potentially relevant. The magistrate judge further explained:

In this district, the Imperial Textiles Supplies Inc.

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