Adjudicating Claims And Setting Claims Reserves Are Different, Right?

An Ontario court has rejected an attempt by claimants in a bad faith claim against an insurer to blur the line between claims adjudication and setting claims reserves, ruling that the insurer’s “records pertaining to reserves” were irrelevant to how the claim was decided.

In Kanani v. Economical Insurance, released last Friday, the court considered a discovery motion in which claimants in an auto accident case sought to compel Economical to produce information about how the insurer set its reserves. (This was a pre-trial motion; the facts and merits of the case have not been heard by the court.)

An insurance company is required by the Insurance Act to maintain reserves for all claims that have an open status. This is because it takes some time for the company to determine the full indemnity amount under the policy and related expense amounts for the claim, and then pay out and close the claim.

While the claim is open, the company is required to set aside funds to allow them to make future payments should claims be advanced.

The claimants contended that the reserve documents would reveal the insurer’s state of mind when it assessed the future needs for and entitlement to an injured victim’s attendant care benefits.