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The High Court declined to order the discovery of insurer’s reserving information. The decision considers the proper purpose of discovery in relation to insurance claims and the role of reserves.
Background
The plaintiff, LWR Durham Properties Ltd, brought proceedings against its insurers over damage to its buildings suffered in the 2010/2011 Christchurch earthquakes.
In a case management Minute the Court directed tailored discovery of six categories of documents (which did not include a seventh category, being “all reserves set by insurers”, proposed by the plaintiff at the time). The plaintiffs subsequently applied for an order that its insurers disclose their reserves.
Reserving
An insurance reserve is the amount of money an insurer expects to pay for an individual claim. Insurers set reserves in order to forecast the total amount to be set aside for meeting current claims. Reserves are usually revisited during the life of a claim as further information becomes available.
Relying on Prattley Enterprises Ltd v Vero Insurance Ltd [2015] NZHC 1444, the plaintiff argued the reserves were disclosable because they evidenced the insurer’s view of liability and went to the credibility of its witnesses.
The defendants maintained the reserves were not relevant to any issues in the proceeding, and that it would be improper to discover these for the mere reason of seeking to impugn a witness’ credibility.
Decision
Matthews AJ held the reserves were not discoverable as they were “a relatively unsophisticated or inexact estimate of the possible financial consequences of claims as they are made, and as [the insurer] update[s] it”. It might have some “scant value” as cross-examination material, but that was not a sufficient or proper basis for ordering its discovery.
Matthews AJ entertained the possibility the reserves could be relevant to the insurer’s belief the plaintiff’s claims for reinstatement were brought too late. His Honour suggested they might show an assessment of possible liability that may be relevant to the question of prejudice from not having had an opportunity to assess damage after each earthquake. However, this was dismissed on the basis that it was not subject to detailed argument.
Prattley was distinguished. It concerned the re-opening of a settlement agreement, meaning the insurer’s knowledge at the time of the agreement was in issue. Discovery of the insurer’s reserves was therefore relevant for reasons specific to that case, which did not apply here.
What is perhaps surprising about this decision is the apparent willingness of the Court to even consider what a party might think it may have to pay or be held liable for is discoverable (other than in limited circumstances, such as Prattley). Reserving is a long established balance sheet exercise by insurers, which should not normally be disclosable.
