United States District Court, S.D. California
ORDER REGARDING JOINT STATEMENT FOR DETERMINATION OF DISCOVERY DISPUTE
WILLIAM V. GALLO, Magistrate Judge.
On December 2, 2013, the Court ordered that by December 6, 2013, Defendant produce documents and serve answers to interrogatories to which the parties agreed, and file a Joint Statement For Determination of Discovery Dispute ("Joint Statement") regarding interrogatories and Requests for Production of Documents to which the parties did not agree.
On December 6 and 9, 2013, the parties filed Joint Statements. The Joint Statements addressed whether Plaintiff was entitled to discover Defendant's reserves in this action, Defendant's standards and training manuals regarding the administration of claims, and Defendant's communications with its coverage counsel. A privilege log is attached to Plaintiff's (La Jolla Spa MD, Inc.'s) Joint Statement. (See Plaintiff's Index of Exhibits In Support of Joint Statement, filed 12/6/13, Exh. D, hereafter "December 6, 2013 Privilege Log").
Thereafter, the Court requested from Defendant supplemental briefing on the propriety of Plaintiff's requests to discover the communications noted above.
On February 3, 2014, Defendant filed a Supplemental Brief. A revised privilege log is attached to Defendant's Supplemental Brief. (See Declaration of Patricia A. Daza-Luu, Exh. 44, filed February 3, 2014, hereafter "February 3, 2014 Privilege Log."). On February 10, 2014, Plaintiff filed a Supplemental Brief.
The Court, having reviewed the Joint Statements, the Supplemental Briefing, the authorities cited therein, and the declarations and documents attached thereto, HEREBY GRANTS in part and DENIES in part Plaintiff's Application to compel Defendant's reserve information, DENIES Plaintiff's Application to compel production of Defendants' standards and training manuals regarding the administration of claims, and DENIES Defendant's Application to compel Defendant's communications with its coverage counsel.
REQUESTS FOR PRODUCTION OF DOCUMENTS
Plaintiff served on Defendant Requests for Production of Documents. Defendant served on Plaintiff objections to the Requests for Production of Documents. The objections address Defendant's redacted reserve information, Defendant's internal claims procedures and training information, and communications between Defendant and its coverage counsel contained in Defendant's claim file.
A. Reserve Information
Plaintiff seeks to compel the production of Defendant's reserve information as noted on the December 6, 2013 Privilege Log. Plaintiff identifies the following documents on the Privilege Log for which it seeks production: p. 86, nos. 1-5; p. 87, nos. 7, 9; pages 88-89, nos. 15, 16, p. 98 no. 51.
Plaintiff claims that it is entitled to discover Defendants' reserve information pertaining to its claim. Plaintiff asserts that reserve information is discoverable because it might be admissible at trial or in pretrial motions to assist Plaintiff in proving its theories that Defendant intentionally delayed payments to Plaintiff for which it knew Plaintiff was entitled, Defendant knew from the inception of the claim that its payments to Plaintiff were likely to be large, that Defendant made unjustified demands for proof of loss and other documentation, and Defendants delayed payment to gain a settlement advantage. Plaintiff cites Lipton v. Superior Court, 48 Cal.App.4th 1519, 1614-1615 (1996) and Bernstein v. Travelers, 447 F.Supp.2d 1100 (N.D. Cal. 2006) to support its position.
Defendant argues that there are two different types of reserve information for the claim at issue in this case: expense reserves and loss reserves, and that neither is relevant to any claim or defense in this action. Therefore, it argues that the Court should not order Defendant to produce this information.
Expense reserves are the amount of the insurer's expected expenses likely to be incurred in the adjustment of claims, such as expert and consultant costs. Lipton, 48 Cal.App.4th at 1613.
Loss reserves represent the amount anticipated to be sufficient to pay all obligations for which the insurer may be responsible under the policy with respect to a particular claim. That amount necessarily includes expenses that are likely to be incurred in connection with the settlement or adjustment of the claim, as well as legal fees and other costs required to defend the insured. (These) estimates... are likely to be frequently adjusted during the course of the litigation.
... The main purpose of a loss reserve is... to reflect, as accurately as possible, the insured's potential liability.... (I)n a case where the insurer has denied coverage and refused a defense, the fact that a reserve has been set by the insurer might well be relevant to show that the insurer must have had some knowledge that a potential for coverage existed....
Lipton, 48 Cal.App.4th at 1613-1614. (emphasis in original, citations omitted).
1. Expense Reserves
Defendant argues that its expense reserves are not relevant to any claim or defense in this action. Further, it argues that there is no authority that supports Plaintiff's argument that the amounts Defendant paid consultants and experts in adjustment of Plaintiff's claim are relevant to its alleged bad faith with respect to the handling of Plaintiff's claim. In fact, the contrary is true. The fact that Defendant paid consultants and experts with respect to Plaintiff's claim shows that Defendant made a good faith distinct effort to analyze and evaluate Plaintiff's claim. Moreover, Defendants have agreed to produce to Plaintiff correspondence by and with consultants used by the law firm hired by it to assist in administration of, and provide a coverage opinion regarding, Plaintiff's claim.
The Court agrees with Defendant regarding discovery of its expense reserves. Plaintiff does not offer any authority, and the Court has not found any authority, to suggest that an insurer's expense reserves information is discoverable. Further, since Defendants produced the consultants' correspondence by and with Defendant's counsel in the administration of Plaintiff's claim, and the fact that Plaintiff's claim was denied due to its alleged failure to cooperate with Defendant and its alleged misrepresentations made to Defendant during the claims administration process, the Court does not see how Defendant's expense reserves information, other than what Defendants have agreed to produce, would be relevant to any claim or defense in this bad faith action. As a result, the Court DENIES Plaintiff' Application to compel production of Defendant's expense reserves information.
2. Loss Reserves
As to Defendant's loss reserves, Defendant acknowledged that in liability cases, the fact that an insurer has established a loss reserve for an insured's claim may be relevant to show the insurer's awareness that a potential for coverage existed. However, in this case, Defendant argues that loss reserves are not relevant because the insurer's good faith or bad faith in investigating and evaluating a claim is determined by the manner in which the insurer conducted an investigation of the claim, the depth of its investigation and a determination of whether there was a good faith factual or legal question as to whether the loss was covered under the policy. American Protection Ins. v. Helm Concentrates, Inc., 140 F.R.D. 448, 450 (E.D. Cal. 1991).
Here, the Court disagrees with Defendant. In Lipton, the court held that information related to an insurer's loss (or claim) reserves may be discoverable in a bad faith case. Lipton, 48 Cal.App.4th at 1614. In this case, Plaintiff's claim of bad faith is that Defendant intentionally and unjustifiably delayed making payments to Plaintiff for which it knew (or should have known) Plaintiff was entitled, in an attempt to avoid reimbursing Plaintiff for all the losses covered by the policy. To this end, Plaintiff seeks Defendant's loss reserve information because it theorizes that Defendant knew from the outset that Plaintiff's claim was likely to be for a large sum of money, that Defendant employed a strategy of making unjustifiable demands for proof of loss, and delayed payments to Plaintiff for which entitlement had been established, in order to induce Plaintiff to accept a low settlement offer. (See Bernstein, 447 F.Supp.2d at 1108).
Therefore, Defendant's loss reserves information is relevant to Plaintiff's inquiry into its claims of Defendant's bad faith in this case. Consequently, Plaintiff's Application to compel Defendant to produce information pertaining to its loss reserves is GRANTED.
On or before April 16, 2014, Defendants shall produce to Plaintiff document nos. 1-5, 7, 9, 15, 16 and 51 as noted on the December 6, 2013 Privilege Log,  subject to a protective order to be entered into by the parties.
B. Claims Handling and Employee Traning Standards
Plaintiff seeks to compel Defendants to produce Defendant's written standards regarding the prompt inves-tigation and processing of claims, training of claims personnel, and the identification and adjustment of suspected fraudulent claims from 2010 through 2013. These Requests for Production of Documents are identified as Requests for Production of Documents nos. 10-29.
Defendant objected to these Requests for Production of Documents as being vague, ambiguous, compound, unintelligible, overbroad, burdensome and oppressive because the Requests for Production of Documents are unlimited in scope, not relevant to any claim or defense in this action, and any responsive documents contain trade secrets and proprietary information.
Plaintiff asserts that Defendant's objections should be overruled because Defendant is required by California law to maintain the requested information. Plaintiff contends that the Requests for Production of Documents seek relevant information regarding an insurer's written standards and are discoverable because they can provide admissible evidence regarding an insurer's initial interpretation of key policy provisions, the structure of an insurer's claims process, and internal guidelines that the ...