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In Braden v. Foremost Insurance Co., No. 4:15-cv-4114, 2016 WL 1417849 (W.D. Ark. April 8, 2016), a Federal Judge in Arkansas essentially rewrote Federal Rule of Civil Procedure 26 with the agreement of the counsel of record in that particular case, and with the agreement of the parties if the parties knew about it.
Rule 26 provides that materials in a court file may be sealed if they are "a trade secret or other confidential research, development, or commercial information." The Rule has been interpreted pretty consistently since it was written to require proof before a court can enter an order sealing materials from public view.
In the Braden v. Foremost Insurance Co. case, as in many cases in contrast, the secrecy order was simply signed by a Federal Judge based on an agreement written by the lawyers "[t]o protect the confidentiality of materials which may contain confidential, proprietary, commercially sensitive, trade secret, or personal information of Foremost's insureds …." Braden v. Foremost Insurance Co., No. 4:15-cv-4114, 2016 WL 1417849, at *1 (W.D. Ark. April 8, 2016).
Protecting personal information of insureds is something all reasonable people can agree is deserving of protection. So, let's get beyond that. In fact, the parties submitted a separate stipulation on that, and the Judge signed that one, too.
However, Rule 26 does not contemplate a blanket order entered in advance of any discovery protecting whatever a lawyer in the case prefers to keep under wraps wholesale.
The experience of Rule 26 shows clearly that secrecy was meant for individualized determinations. Lawyers' secrecy stipulations demean that experience by surrounding whole swaths of testimony and documentation in blanket secrecy, if permitted by judges. Rule 26 depends instead on a determination by a court after adversary proceedings on particular materials or groups of materials for the most part. This way of reaching secrecy determinations is consistent with most other aspects of a judicial system that has been built on the belief that adversary proceedings are the best available engine of determining facts in litigation.
Rule 26 also does not authorize the concealment of testimony and documentation simply because someone thinks it should be kept "confidential, proprietary, [or] commercially sensitive ...." Before the advent of secrecy stipulations and blanket confidentiality orders approving secrecy stipulations without the need for any evidence at all, the party seeking secrecy has always had to prove a need for secrecy.
Perhaps nothing could illustrate this better than the fact that the secrecy order filed on April 8, 2016 in Braden v. Foremost Insurance Co. does not mention Rule 26 even once. Without the Rule, what could possibly be the source of authority to make anything in that case confidential or secret or hidden from public view? There being no such authority cited, the inescapable conclusion is naturally that there is no such legitimate authority at all.
Further, the particular secrecy stipulation offered and accepted in the Arkansas case is an expanded version of what has been a fairly uniform proposed secrecy stipulation used throughout the United States, in many kinds of cases. As noted, however, this one is an expanded version, 20 paragraphs long. The Court's Order approving it occupies 5 printed pages from Westlaw.
It is incredible to accept that these stipulations are a result of intellectual horse trading, or the product of a debate over ideas. The interests of the plaintiffs and of the defendants, particularly in these large cases, are widely separated into one side of the litigation which generally thrives on disclosure in all things including discovery, and another side of the litigation which covets secrecy. Since when do secrecy orders require all those words if they are legitimate?
What was this particular case about anyway? It is telling that there is not a word about the nature of the case in any of the 20 paragraphs or 5 pages. I had to go to PACER ("Public Access to [Federal] Court Electronic Records") to find out. It is about insurance coverage, not state secrets or anything of that kind.
The Class Action Complaint contains allegations that Foremost routinely depreciated labor in calculating the value of repairs.
There are not even any allegations of first-party insurer bad faith to take this case out of the routine and ordinary class and into the sphere of silence and secrecy.
The overuse and over-approval of secrecy stipulations is stifling the founding idea of access to court in the United States. Silent as fog, baseless secrecy orders are enabling the willful elevation of short-term fees over long-term survival of a democracy. Future articles will address this unwelcome step toward rewriting Rule 26 when the lawyers and the judges, and perhaps the parties in particular cases, want to seal the evidence from public view.
"FOUR BY FOUR" INSURANCE COVERAGE FOR NONDISCLOSURE LAWSUITS?
Four mortgage lenders have been sued in four class actions in 2 States, Georgia and Florida. All four lawsuits present claims that these mortgage lenders failed to disclose that homeowners could protect themselves against extra interest charges by paying off their FHA-guaranteed loans either at the end or on the first of the month, and by using forms the FHA did not approve:
Wells Fargo Home Mortgage
U.S. Bank
Suntrust Mortgage, and
Bank of America.
"The net effect of the allegedly improper disclosures, the suits charge, is that large numbers of borrowers paid more in interest than they could have, and that the four banks collected substantial sums in post-payment interest illegally on FHA mortgages." Kenneth R. Harney, "The Nation's Housing / Homeowners fight mortgage-interest overcharges" (Washington Post Syndicated Column, April 12, 2016).
Question: Can these four lenders shift the liability for these lawsuits to insurance carriers? If they can and do, what types of insurance policies could cover these claims? If more traditional forms of insurance are not available to these four lenders, how much cover do they have in credit default swaps?
At one time, answers to these questions would certainly have been kept from the public. For years now, however, Federal Rule of Civil Procedure 26 has required defendants to divulge their liability insurance coverage. New questions arise now, though:
Will the plaintiffs and their lawyers in these cases stipulate to the secrecy these lenders covet, rather than face the potentially overwhelming onslaught of the lenders' lawyers if they do not stipulate to secrecy, and
Will the Courts in these cases allow these four lenders to shield their liability insurance policies and other information from public view other than by the lawyers and perhaps the parties?
Apparently the Federal Government made this term up. I have hardly heard it in all the time that I have been practicing Insurance Coverage law. Perhaps other practitioners and insurance professionals share the experience.
The following statutory definition represents one of the few times that I have found a definition of "hazard insurance" anywhere. It means what "property insurance" means throughout the United States. Note that this Section was amended in 2015, effective in 2016, but the amendment did not affect this definition:
(i)Definitions
For purposes of this section, the following definitions shall apply:
(1)Flood insurance
The term “flood insurance” means flood insurance coverage provided under the national flood insurance program pursuant to the National Flood Insurance Act of 1968.
(2)Hazard insurance
The term “hazard insurance” shall have the same meaning as provided for “hazard insurance”, “casualty insurance”, “homeowner's insurance”, or other similar term under the law of the State where the real property securing the consumer credit transaction is located.
15 U.S.C.A. § 1639d(i)(1)&(2) (emphasis added). Section 1639d is titled, "Escrow or impound accounts relating to certain consumer credit transactions." Translation: The statute applies primarily to residential mortgage loan transactions.
Travelers issued a CGL or commercial general liability policy to Portal Healthcare Solutions in 2012 and renewed it in 2013. Portal has been sued in a class action lawsuit pending in Virginia. Travelers denied all coverage including a defense.
The Fourth Circuit succinctly described the underlying class action against Portal in these words:
The class-action complaint alleges that Portal and others engaged in conduct that resulted in the plaintiffs’ private medical records being on the internet for more than four months.
Travelers decided to test its duty to defend a cyberbreach under its CGL policies by filing suit in the Eastern District of Virginia for declaratory relief. The Travelers clearly felt very sure of its disclaimer decision; it decided to file this dec action after leaving its insured without a defense.
The District Judge entered a summary judgment against Travelers and in favor of Travelers' insured, Portal.
On Monday of this week, the Fourth Circuit Court of Appeals affirmed the District Court's summary judgment, again wasting no words:
Put succinctly, we agree with the Opinion that Travelers has a duty to defend Portal against the class-action complaint. Given the eight corners of the pertinent documents, Travelers’s efforts to parse alternative dictionary definitions do not absolve it of the duty to defend Portal.
Parenthetically, the Fourth Circuit opinion was issued as "non-precedential" in the Fourth Circuit. However, the District Court decision has been published in F. Supp. One will be formal precedent within the Fourth Circuit; both will be precedent everywhere else in all likelihood.
Put succinctly, The Travelers could have done better than disclaim a duty to defend a class action in which the plaintiffs alleged that their medical records were posted on the internet for more than four months on account of what the defendant did or did not do. It certainly could have done a lot better than compounding that disclaimer decision by filing a lawsuit against its insured to prove how right it was to disclaim all coverage for the claims of the people whose medical records ended up on the internet.
Why did they ever think that this was a good case to disclaim all coverage including to disclaim a duty to defend? This case is an outlier in that sense. Most liability carriers would have provided a defense and issued a reservation of rights to deny coverage later, then they would have filed a dec action. As it stands, the issue of CGL coverage for a cyberbreach is what people will take away from what is really a decision on the Virginia (and majority) view of the duty to defend.
A homeowner's carrier has a duty to assess the value that homeowners lose because of physical damage to their homes, even if their homes are repaired. In Thompson v. State Farm Fire & Cas. Co., No. 5:14-CV-32 (MTT), 2016 WL 951537 (M.D. Ga. March 9, 2016), the District Court certified a class of Georgia homeowners who are alleging a claim that State Farm, their homeowner's carrier, did not assess the value lost in their homes. The lead plaintiffs in particular successfully presented a claim for water damage after pipe burst in their home. State Farm paid for repair of the damage under their homeowner's policy. They were told by State Farm, however, that their policy did not cover "diminished value." Their policy was allegedly the carrier's standard contract, common to the members of the Georgia class, and State Farm takes the position that its standard homeowner's policy simply does not cover diminished value.
Parenthetically, on the same record the Court in that case declined to certify another class consisting of Georgia homeowners pursuing a claim that State Farm had a duty to pay their lost value claims. The Court determined that such a class of homeowners would require individualized damage determinations, and so no class could be certified on the duty to pay claims. The duty to assess claims were certified, in contrast, because they present common claims under the same contract for alleged failure of a duty to investigate or assess diminished value.
This may not be as significant a decision as it sounds. The Court in this case pointed out that in other class action lawsuits other "insurers have admitted their policies cover diminished value." Thompson v. State Farm Fire & Cas. Co., No. 5:14-CV-32 (MTT), 2016 WL 951537, at *8 n.5 (M.D. Ga. March 9, 2016).