No. 33209 State of West Virginia ex rel. Erie Insurance Property & Casualty Company
v. The Honorable James P. Mazzone, Judge of the Circuit Court of Ohio
County and Elizabeth Murfitt
Benjamin, Justice, concurring:
The nature of the instant litigation coupled with the trial court's detailed
findings and narrow ruling regarding reserve information at issue herein underscores the
propriety of the denial of the requested writ of prohibition. The basis of Ms. Murfitt's claim
against Erie Insurance Property & Casualty Company (hereinafter Erie) is that Erie
violated West Virginia law by failing to make a good faith attempt to settle her claim against
an Erie insured arising from an automobile accident in which she sustained significant
injuries. West Virginia law imposes a duty upon insurers doing business in this state to
attempt in good faith to effectuate a prompt, fair and equitable settlement of claims in
which liability has become reasonably clear. W. Va. Code § 33-11-4 (9) (f) (2002).
Additionally, our law prohibits an insurer from refusing to pay a claim without conducting
a reasonable investigation based upon all available information. W. Va. Code § 33-11-4
(9) (d). At the time of the actions at issue herein, our law likewise provided that a third-
party, such as Ms. Murfitt, could assert a private cause of action directly against an insurer
who failed to comply with mandates of our Unfair Trade Practices Act, W. Va. Code § 33-
11-1, et seq.
After settling her claim against Erie's insured on the second day of trial for
substantially more than any Erie pre-trial settlement offer, Ms. Murfitt amended her
complaint to assert a bad faith cause of action directly against Erie arising from its conduct
in handling her claim. The primary issues to be resolved in this direct action against Erie
are, therefore, what Erie knew about Ms. Murfitt's claim, when Erie knew it and whether
Erie attempted, in good faith, to effectuate a fair and equitable settlement in light of the
information available to it at the time any particular settlement offer was made. From the
limited record before this Court, it appears Erie consistently offered to settle Ms. Murfitt's
claim for less than her incurred medical bills and without regard for her lost wages for nearly
two years prior to the commencement of the trial of the underlying personal injury action.
Then, within the month before the personal injury trial was to commence, Erie's settlement
offer increased exponentially without any objective evidence of newly discovered facts
justifying such a dramatic increase. Ultimately, Erie offered to settle Ms. Murfitt's claim for
$800,000 on the second day of trial, an offer nearly sixteen times greater than Erie's average
settlement offer for the two years prior to trial.
A fundamental prosecution theory for a failure to offer reasonable settlement
claim is that the insurer indeed valued the claim much higher than its settlement offers
indicated. Thus, the critical evidence necessary to succeed on such a claim is how the insurer
valued the claim at the time the settlement offers were made. Where, as here, the insurer
admits that its reserves for a particular claim are fact-dependant, i.e., set in light of the
information available regarding a particular claim, the reserve amount is directly relevant
and constitutes primary evidence of whether the insurer attempted, in bad faith, to settle a
claim for substantially less than the amount it deemed reasonable and equitable
compensation for the injuries sustained.
As few jurisdictions recognize common-law third party bad faith actions, most
discussion regarding the ability to discover reserve information has occurred in the context
of first party bad faith claims where the basis of the claim is a denial of coverage, failure to
settle and/or failure to defend. In those contexts, several courts have recently found reserve
information to be both relevant and discoverable because it demonstrates the propriety of
the insurer's actions. See, Oak Lane Printing & Letter Service v. Atlantic Mut. Ins. Co.
W.L. 1725201, *4 (E.D.Pa. June 13, 2007) (For instance, reserve information is relevant
to a bad faith claim where the insurer fails to settle or where there is a disputed issue
regarding the value of the claim.); United States Fire Ins. Co. v. Bunge North America,
, 2007 W.L. 1531846, *9 (D. Kan. May 25, 2007) (the information sought may
demonstrate the extent to which the Insurers investigated and considered Bunge's claim, and
thus is relevant to the question of good or bad faith in failing to indemnify or defend
Bunge.); Athridge v. Aetna Cas. & Sur. Co.
, 184 F.R.D. 181, 192 (D.C. 1998) (evidence
of settlement reserve is relevant in action for breach of fiduciary duty to insured or insured's
assignee because information will aid in demonstrating thoroughness with which claim was
The United States District Court for the Northern District of California
recently discussed the relevancy of reserve information to claims of bad faith in a first-party
context in Bernstein v. Travelers Insurance Company
, 447 F.Supp.2d 1100 (N.D. Cal.
2006). Although the claim at issue in Berstein
, involved the insurer's alleged knowing
refusal to release payments to its insureds, (See footnote 1)
the circumstances therein are analogous to the
issue presented herein, the failure to make reasonable settlement offers. Discussing the
relevance of reserve information to the claims asserted, the court stated:
In assessing the discovery relevance of the targeted
information, we must consider all the litigation purposes for
which plaintiffs might use it _ as direct evidence on a disputed
issue, as grounds for challenging or testing positions taken
during the litigation by the defendants, or as means to help
develop evidence that could be used, directly or
circumstantially, to litigate more reliably the principal issues in
, 447 F.Supp.2d at 1105-06 (footnote omitted). With respect to a bad faith action,
the court noted that reserve information may be relevant to 'the question of whether . . . the
insurer had conducted a proper investigation or given reasonable consideration to all of the
factors involved in a specific case[.]' Id.
at 1107, quoting, Lipton v. Superior Court
, 48 Cal.
App.4th 1599, 1614 (2nd
Dist. 1996). Explaining the relationship between reserve
information and the bad faith claims asserted, the court recognized that:
[c]ritical to [the] theory of the case is a posited self-conscious
disconnect (a large, unbridgeable gap) between, on the one
hand, what Travelers was communicating to, demanding of, and
paying its insured and, on the other hand, what Travelers
actually thought it owed and would owe under the claims.
Under this theory, what Travelers' internal assessment of the
subject claim actually was at various junctures is the critical
factual issue in the litigation.
Plaintiffs assert that discovery of the reserves that Travelers set
aside, and of internal documents, comments and
communications related to those reserves, will enable plaintiffs
to uncover and prove what Travelers internal assessments
really were _ and thus to demonstrate that there were big,
inexplicable differences between what Travelers communicated
to and demanded of plaintiffs and what Travelers really
understood about both coverage and valuation issues. . . .
Without the materials sought through this discovery, plaintiffs
and the court would be more dependent on oral testimony from
Travelers' agents about what they really thought about the
claims as they were being processed _ and thus more vulnerable
to good faith errors of memory or to deception.
Id. at 1108-09 (footnote omitted). Similarly, the critical issue in this matter is whether Erie's
pre-trial settlement offers were reasonably related to what Erie actually thought it owed on
Ms. Murfitt's claim. Considered discovery of the reserve dates and amounts constitute the
best objective evidence of how Erie valued Ms. Murfitt's claim in light of Erie's admission
that the reserves were set in light of the facts known to Erie without necessitating inquiry
into the internal thought processes of Erie's agents.
By permitting the discovery of the dates and amounts of reserves, the
reasonableness of Erie's settlement offers may be determined. If the reserves are vastly
greater than the settlement offers made, such fact may show that Erie violated West Virginia
law by attempting, in bad faith, to settle Ms. Murfitt's claim for far less than Erie reasonably
believed its value to be. By contrast, if the reserves were reasonably
related to the settlement offers made, the same could be used as a defense by
Erie to demonstrate that it made a good
faith attempt to settle Ms. Murfitt's claim for an amount it deemed reasonable in light of all
facts known. (See footnote 2)
In light of the record presented herein, this Court properly denied Erie's
requested writ of prohibition. The trial court's order is appropriately narrow and protects
against the discovery of the thought processes underlying the establishment of Erie's
reserves in that is provides only for the date a particular reserve was established and its
amount. By permitting discovery of the reserve amounts and dates, the trial court's order
permits Ms. Murfitt access to evidence critical to the prosecution of her claim, evidence
existing only in the possession of Erie. It would be difficult, if not impossible, to prove a
claim that an insurer offered unreasonably low and inequitable settlement amounts in light
of the value the insurer placed on a claim without access to evidence indicating how the
insurer actually valued the claim. By allowing Ms. Murfitt to discover reserve amounts and
dates, the trial court's order properly gives Ms. Murfitt access to critical information for
which she has a substantial need and which she could not otherwise obtain. Accordingly,
I concur in the denial of the requested writ of prohibition.
According to the court in Bernstein
Central to plaintiffs' theory of the case is that Travelers
repeatedly and knowingly refused to release payments that it
knew it owed on the claims, and that Travelers' business
strategy over at least the first 20 months of the claims processing
period was to make unjustifiable demands for proof of claims,
to unjustifiably delay making payments, and then to pay less
than it actually believed it owed, all in order to soften Berstein
up for a settlement offer that Travelers knew was appreciably
smaller than the real value of plaintiffs' claims.
, 447 F.Supp.2d at 1108. While I recognize that an insurer owes a higher duty to
its own insured than to a third-party claimant, the reasoning utilized by the court in Bernstein
is persuasive to me due to the similarity of the theory asserted therein (refusing to make
payments knowingly owed to an insured) to that asserted in the instant matter (making
unreasonably low settlement offers knowing the claim had a much higher value). The
relevance and persuasive nature of the Bernstein
analysis is further demonstrated by the
court's recognition therein that there is a closer apparent proximity between the amount of
a reserve and the coverage issue in a third party action (alleging bad faith in declining to
fund an insured's defense) than in a first party case. Id.
When faced with a claim that it violated West Virginia law by failing to make
reasonable settlement offers, I have little doubt that an insurer would be eager to disclose its
reserve information where the same is reasonably related to its settlement offers because such
a relation could serve as a defense to the bad faith allegations.