Claims and Bad Faith Law Blog

WHAT IS LEFT THAT IS NOT SEALED?

In Las Vegas Sands, Inc. v. Nat’l U. Fire Ins. Co., No. 2:22-cv-00461-JCM-BNW,  2023 WL 6929303 (D. Nev. Oct. 19, 2023) (Weksler, USMJ), a United States Magistrate Judge granted two motions to seal in an insurance case.  The defendant insurance company requested one set of documents to be sealed, and the plaintiffs requested another set of documents to be sealed.

The documents in question were submitted to the Court to consider in connection with the parties’ competing motions for summary judgment.

The Magistrate Judge granted the insurance company’s motion to seal exhibits that the carrier submitted to the Court with testimony in the form of a declaration or affidavit about the carrier’s claims handling guidelines.  The Magistrate Judge ruled that documents regarding claims handling are trade secrets and so should be sealed from public view, although they had been submitted to the Court to consider along with testimony about them.  Las Vegas Sands, 2023 WL 6929303, at *2.

The plaintiffs-policyholders requested that their previous settlement in a previous matter be sealed.  That, too, was sealed by the Magistrate Judge in this case.  Las Vegas Sands, 2023 WL 6929303, at *2-*3.

Although the Magistrate Judge’s opinion did not mention it, this is an insurance bad faith case, among other claims:

1. This action seeks declaratory relief and damages for breach of contract, violations of the Nevada Unfair Claims Practices Act, and breach of the covenant of good faith and fair dealing, arising out of AIG’s long-standing, bad faith refusal to acknowledge and then honor its contractual obligations under a private company liability insurance policy to pay LVS’s defense and settlement costs incurred in an underlying lawsuit styled Richard Suen & Round Square Co. v. Las Vegas Sands Corp., et al., No. A493744 (Nev. Dist. Ct., Clark Cnty.) (the “Suen Action”).

Las Vegas Sands, Inc. v. Nat’l U. Fire Ins. Co., Complaint, ¶ 1 at p. 2, filed March 14, 2022 (D. Nev. Case No. 2:22-cv-00461).  Download Las Vegas Sands Inc. v. National Union Fire Ins. Co. Complaint, DE 1, filed March 14 2022 (D. Nev. Case No. 2..22-cv-00461).

If claim handling guidelines are sealed from public view, and if settlement agreements are also kept out of the public eye, it’s a real question as to what if anything is open to public view in an insurance bad faith case.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved. 

COVID-19, CORONAVIRUS CASES DECIDED BY JUDGES, NOT EPIDEMIOLOGISTS.

COVID-19 Assisted Living Facility Nurse Catharine Best in AARP Article on Coronavirus.  (Image via AARP and Catharine Best)

In Happy Valley Road LLC v. Amguard Ins. Co., No. 3:22-cv-06115-LB, 2023 WL 6200063 (N.D. Cal. Sept. 12, 2023) (Laurel Beeler, USMJ), a respected U.S. Magistrate Judge reiterated a fairly noncontroversial ruling in a way worth noting.

The ruling previously issued by the Court in this case was that there was no insurance coverage for a plaintiff LLC that owns and rents high-end properties and that alleged the loss of rental income due to the presence of COVID-19 on the insured’s premises.  The Court accordingly granted the insurance carrier’s motion to dismiss.  “The court relies on its previous analysis:  the actual or potential presence of the COVID-19 virus is not a covered loss.^15”  Happy Valley, 2023 WL 6200063, at *4.  The ruling is fairly noncontroversial.  However, it is worth noting how the Court itself saw that previous ruling in its description of it in the Court’s own footnote 15.

The plaintiff did not allege that the property was unfit to live in but only that the coronavirus rendered its property uninhabitable.  It lost the battle and the war on the motion to dismiss because “[i]t did not cite any cases to counter the weight of authority concluding that the presence of the virus does not render a property uninhabitable.”  Happy Valley, 2023 WL 6200063, at *4 n.15.

Legal authority, not medical authority, decides the outcome in all these cases, including this one.  The deciding authority is clear, and it is not a physician that decides, it is a judge.  Perhaps a system run by judges can lead to no other outcome.

Perhaps.

Virus Exclusions and the Coronavirus Pandemic of Covid-19 are discussed in § 7:20 by Dennis J. Wall, in 1 CATASTROPHE CLAIMS / INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS (Thomson Reuters June 2023 Edition).

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

JOINT MOTION TO ENTER STIPULATED PROTECTIVE ORDER IS NOT ENOUGH.

A joint motion for entry of a stipulated protective order is not enough for a federal Court to enter the stipulated order.  “Rule 26(c) allows the Court to enter a protective order for good cause shown.”  Gordon v. Menard, Inc., No. 1:23-cv-00317-HAB-SLC, 2023 WL 6619427, at *1 (N.D. Ind. Oct. 10, 2023) (Collins, USMJ).  Good cause was not shown in Gordon, and here’s why the Magistrate Judge denied the joint motion without prejudice.

To begin with, the proposed stipulated protective order was overbroad on its face.  In pertinent part, “it seeks to protect information regarding current and former employees and agents,” but as the Court pointed out, there are many times when employee information is subject to disclosure such that an absolute ban on disclosure is contrary to the law.  See Gordon, 2023 WL 6619427, at *1.

Next, all parties failed to show good cause to protect “Defendant Menard Inc.’s training videos and materials, policy and procedure, information of Menard Inc. and its shareholders and directors, store surveillance videos, and blueprints and schematics.”  Gordon, 2023 WL 6619427, at *2.

An insurance carrier’s desire to protect its similar information from disclosure is obvious, particularly if the parties to an insurance case can get away with stipulating to protect something as ill-defined as otherwise unidentified “information of [the insurance company] and its shareholders and directors,” similar to what the parties tried to do in proposing their stipulated order in Gordon.  In Gordon, though, the parties’ stipulation to protect did not fly in this regard.  “The proposed order makes no effort to specify why the purported protected materials are confidential.”  Gordon, 2023 WL 6619427, at *2.

For a third drawback in the eyes of the Gordon Court, the proposed order would have allowed the parties to file documents marked “Confidential Material” under seal in their entirety, without redacting the supposedly confidential information.  This, too, is contrary to law.  See Gordon, 2023 WL 6619427, at *2.

For the benefit of the parties in the future, including if and when they redraft and resubmit their proposed stipulated protective order, the Court had two more things to say.  First, this Court “is unwilling to enter a protective order that suggests it retain jurisdiction of any kind after resolution of the case[.]”  Gordon, 2023 WL 6619427, at *2 (emphasis by the Court).

Second, the Court admonished the parties to modify their version of protected confidentiality of information once the case came to an end:

Similarly, the parties should expressly state that any provisions requiring the return or destruction of confidential or protected information at the end of this litigation—such as those in Paragraph 4 of the proposed order (ECF 16-1 ¶ 4)—do not apply to the Court or material filed with the Court.

Gordon, 2023 WL 6619427, at *2.

While entering all of these relatively clear and unambiguous rulings that leave no room for reasonable interpretation, the Court actually began its opinion in this case with a seeming ambiguity.  As was pointed out here, the Court began its rulings by referencing Federal Rule of Civil Procedure 26(c)’s requirement of “good cause” before any protective order can be entered by a federal Court.

However, the Court pointed out in a footnote that the same level of scrutiny of what exactly constitutes “good cause” varies from case to case, and that it was applying “a higher level of scrutiny” that was required here “[b]ecause the proposed order permits filing under seal without court permission[.]”  Gordon, 2023 WL 6619427, at *1 n.1.

This is an important concept for practitioners and judges to keep in mind when evaluating whether good cause has been shown to shield discovery, evidence, information, or anything else during litigation in federal Courts – including insurer bad faith litigation among the rest.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

A TALE OF TWO JUDGES, NO SURPRISES ACT, NO SURPRISES.

U.S. Supreme Court.  (Sarahbeth Maney / New York Times)

In a thorough opinion written by Senior District Judge Richard Leon, the Court upheld the rule that was issued in October 2021 to establish an independent dispute resolution process, namely arbitration, of disputes between health plans and out-of-network providers over the providers’ bills.  Ass’n of Air Med. Serv’s v. U.S. Dep’t of Health and Human Serv’s, No. 21-3031 (RJL), 2023 WL 5094881, at *1 & n.2 (D.D.C. Aug. 9, 2023).

The No Surprises Act was enacted on December 27, 2020.  The Act’s purpose, you may recall, was “to end ‘surprise billing’ for patients and to remove them from the middle of payment disputes between the patient’s group health plan or issuer and providers.”  Association of Air Medical Services, 2023 WL 5094881, at *1.

Out-of-network providers such as the plaintiff Association of Air Medical Services were understandably concerned with losing lucrative billings, whether their billings were paid for by patients or insurers.  Out-of-network providers successfully challenged limitations on billing and arbitration of their charges in the Eastern District of Texas, where parts of the rules were vacated.  The relevant agencies then rewrote and reissued the rules, including the arbitration rule challenged by the Association of Air Medical Services here.

Considering only the rewritten, reissued rule on arbitration that was before the Court, Senior District Judge Leon found “the defendants’ position to be eminently reasonable.”  Association of Air Medical Services, 2023 WL 5094881, at *3.  Judge Leon, an appointee of Pres. George W. Bush, has not always issued rulings favorable to the Government’s position, to say the least, but he did so here.

Judge Leon was satisfied as a judge in this case that the Government acted reasonably and in accordance with law, which is the test for whether the challenged Government action complied with the Administrative Procedure Act even if the judge’s own preferred reasoning might have been different from the Government’s reasoning.  As to the arbitration rule before the Court in this No Surprises Act case, the Judge held:  “That is the very type of well reasoned analysis the APA requires!”  Association of Air Medical Services, 2023 WL 5094881, at *7 (emphasis by the Court).

In the meantime, in the Eastern District of Texas, an air ambulance service provider and other out-of-network providers have been busy obtaining decisions from a district judge appointed in 2018 which reject the same well reasoned analysis.

The apparent differences between the rulings may be resolved in the future.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

EARTH MOVEMENT, FOUNDATION MOVEMENT, AND LEAKING PIPES.

In Mays v. “Meridian Sec. Ins. Co. State Auto Ins. Cos.,” No. 4:22-cv-1150-P, 2023 WL 6534213, at *1 (N.D. Tex. Aug. 25, 2023), the Court observed that the homeowner’s policy before the Court in that case provided coverage for loss caused by plumbing leaks:

Plaintiff's policy does cover “loss caused by an accidental discharge of water from a sewer pipe or plumbing system.” 

(Emphasis by the Court.)

The defendant carrier moved for summary judgment partly on the basis of an exclusion in the policy for damage caused by “earth movement.”  Mays, 2023 WL 6534213, at *1.

What the plaintiff alleged was apparently as simple as this:  Plumbing leaks caused soil erosion under the home’s foundation, resulting in the claimed loss.  Mays, 2023 WL 6534213, at *1.

In addition to denying coverage on the basis of its “earth movement” exclusion, the defendant carrier candidly alleged in its motion for summary judgment that the parties’ experts differed in their opinions as to whether the leaks in question caused the foundation movement in question.  Further, the defendant did not concede that the plumbing leaks were the cause of the foundation movement.  Mays, 2023 WL 6534213, at *1.

For this reason and on this record the Court ruled that there were genuine issues of material fact and denied the carrier’s motion for summary judgment in this case. Mays, 2023 WL 6534213, at *2.

Property Insurance Coverage Issues:  Exclusions are discussed at length in Chapter 7 by Dennis J. Wall in Volume 1 of Catastrophe Claims / Insurance Coverage for Natural and Man-Made Disasters (Thomson Reuters June 2023 Edition).  Earth Movement Exclusions in particular are addressed in § 7:9.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

SEEKING CLAIMS AND ALLEGATIONS IN COMPLAINTS: THE FINAL FRONTIER.

Continuing from articles posted here last Friday, September 29, 2023, "GOT COMPLAINTS?  YOU CAN KEEP THEM SECRET FROM THE PUBLIC," and on Monday of this week, October 2, 2023, POSTSCRIPT TO "GOT COMPLAINTS?  YOU CAN KEEP THEM SECRET FROM THE PUBLIC," I want to redirect our attention, yours and mine, back to insurer bad faith litigation in particular.

I am not sure how this will all fall out in any given case, but suppose with me that a policyholder possesses information – documents, transcripts of testimony, other evidence – but for whatever reason expects that the insurance company that will be a defendant in the case will fight to keep the information a secret.

Or perhaps to limit the use of the evidence to this case alone.

Or perhaps even to pressure the policyholder and her lawyers to agree to keep the information confidential.

In such cases, a policyholder-plaintiff might be sorely tempted to follow the path that the Federal Trade Commission seems to be blazing.  Witness the two complaints filed less than a week apart in late September, 2023 in which key allegations and claims were blacked out, or what lawyers euphemistically call "redacted." 

Take the FTC's explanation in its case against Amazon, for example, reported here on Friday, September 29, 2023:

The FTC blames Amazon for its redactions.  Plaintiff's Motion for Leave to Temporarily Seal Portions of the Complaint, DE 2 at 2, 3-4, filed Sept. 26, 2023 (W.D. Wash. No. 2:23-cv-01495-JHC).  Download Federal Trade Commission v. Amazon.com Inc. Motion for Leave to Temporarily Seal Portions of the Complaint DE 2 filed Sept. 26 2023 (W.D. Wash. No. 2.23-cv-01495).

What if our imagined policyholder-plaintiff similarly blamed the defendant carrier for the policyholder's redactions?  And what if the policyholder-plaintiff made it clear in her motion to temporarily seal the blacked out parts of her complaint, that she did not think they were confidential, just as the FTC has done in the Amazon case, again, for example:

The FTC said this:  "The FTC makes this request to comply with its regulations governing treatment of confidential information submitted to the FTC during its pre-complaint investigation and to give affected parties an opportunity to ask the Court to seal portions of the Complaint on a permanent basis.  The FTC is not claiming confidentiality with respect to any information that is the subject of this Motion."  Id. at 1-2.  [Emphasis added.]  The FTC also wrote that its request to seal was based on a "federal statute and FTC rules."  Id. at 3-4.  [Emphasis added.]

Our policyholder might allege that her request was made to comply with orders or rulings or an agreement with the carrier concerning the exchange of information before her instant lawsuit was filed or because of a presuit contention by the carrier that certain information should be confidential.  She might perhaps be as vague as the FTC, which did not identify any of the supposed regulations, statutes or rules on which the FTC was basing its request.  She might add, again following the tack taken by the FTC, that she is not claiming confidentiality with respect to any information that is the subject of this Motion.  

If the Court allows that approach, then that would put the onus on the carrier to explain to the Court why such evidence should be kept from public view right at the beginning of the lawsuit.  This seems to be the approach now being tested in Court by the FTC.  As the FTC wrote in its Reply to the author in regard to blacked out allegations and claims in its recent complaints:

Specifically, the Reply written by an FTC spokesperson, here:

In both cases, the companies and defendants who provided the information will have to provide legitimate justification for preventing redacted information from being revealed.

 Victoria Graham, FTC spokesperson.

E-mail from Victoria Graham, Spokesperson, Federal Trade Commission, to the author (Sept. 29, 2023, 12:32 PM ET)(on file with author).

Should policyholder counsel wish to pursue such a tack themselves, particularly in insurer bad faith cases, they should watch the results of the FTC's cases very closely – and so should counsel for carriers defending their clients in bad faith cases.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

POSTSCRIPT TO "GOT COMPLAINTS? YOU CAN KEEP THEM SECRET FROM THE PUBLIC."

I was working on a longer article that would include what I think the FTC strategy is in keeping some allegations and claims a secret in its recent complaints (of all places), but that is taking longer than expected.  I will post an article later in the week.

Today, I wanted to add the Reply that I got from the Federal Trade Commission.  Specifically, the Reply written by an FTC spokesperson, here:

In both cases, the companies and defendants who provided the information will have to provide legitimate justification for preventing redacted information from being revealed.

 Victoria Graham, FTC spokesperson.

E-mail from Victoria Graham, Spokesperson, Federal Trade Commission, to the author (Sept. 29, 2023, 12:32 PM ET)(on file with author).

P.S.

Although the FTC's Reply through Ms. Graham was apparently sent early in the afternoon on Friday, September 29, 2023, I was not notified by my spam filter that it had been blocked, until that Friday evening.  I am taking this opportunity on the next following working day to add this Postscript to Friday's posted blog article.)

Please read the disclaimer.  This blog article ©2023 Dennis J. Wall.  All rights reserved.

LOOK AT THE LENDER, NOT THE CARRIER.

The insurmountable bar of "third-party beneficiary" status in homeowners' actions against force-placed insurance carriers, is obvious now if ever it was in doubt.  These are lawsuits filed by homeowners who are forced to  pay insurance premiums without a corresponding legally recognized right to receive benefits under the policy when there is a loss.

In Zabala v. Integon Nat'l Ins. Co., No. 20-22221-Civ-Scola, 2020 WL 3977380 (S.D. Fla. July 14, 2020), the Court dismissed such a homeowner's complaint with prejudice because the lender and the carrier did not intend to benefit the homeowner when the lender ordered a force-placed insurance policy from the carrier, even though they charged the homeowner for the premiums.

(Parenthetically, Westlaw released the Zabala decision in the middle of September, 2023.)

The Court said that its decision derived in the first place from Florida law, which requires an intent of contracting parties to benefit the party claiming the right to sue as an intended or third-party beneficiary.  Zabala, 2020 WL 3977380, at *2.  This represents the general trend of the federal case law to deny homeowners who are forced to pay insurance premiums the right to sue when the insurance is denied, as was the case for example in Zabala.  See the article posted here on December 7, 2022, for example, WHEN DEFENDANTS, NOT JUDGES, SAY WHO CAN SUE.

In Zabala, as in most of these cases, the judge wrote that the Court's decision was based on the law, although the force-placed insurance policy also declared that the homeowner was not an intended beneficiary.  Zabala, 2020 WL 3977380, at *3. 

The reality is, however, that a lender and an insurance carrier can force a homeowner to pay premiums for an insurance policy that benefits only the lender simply by declaring that they do not intend to benefit the party paying the premiums.

The Zabala Court made this clear when it expressly rejected the homeowner's argument "that he has standing to pursue this action as a third-party beneficiary to protect his own interest as a homeowner for the insured property."  Zabala, 2020 WL 3977380, at *4.  This Southern District of Florida  Court then went on to reject reliance on contrary Middle District of Florida case law as "misplaced."  Moreover, the Middle District cases in question "did not involved policies" like the one at bar, the Zabala Court said.  Zabala, 2020 WL 3977380, at *4. 

That is certainly one view of the situation, and the result in Zabala exemplifies it.  A different view is available, however, which Zabala and its predecessors and progeny have left uncited and untouched.

The different view is the flip-side of the situation exemplified in Zabala where the homeowner sued only the carrier and not the lender.  The difference involves, rather, suing the lender, not the insurance carrier. 

When the lender's alleged failure to include the homeowner on the force-placed insurance policy is alleged as a breach of the lender's fiduciary duty, the homeowner-mortgagor's claims have been allowed:

Instead, the mortgagors alleged that the lender force-placed insurance (LFPI) was objectionable on the basis of two allegations:  (1) they were forced to pay excessive premiums under the  LFPI policy and (2)  the lender failed to include them on the policy.  On these two allegations, they claimed that the lender acted in bad faith and breached fiduciary obligations under Florida law as a result.

The case is Meyer v. Bank of Am., N.A., No. 3:21-cv-1088-HES-JRK, 2022 WL 18492520 (M.D. Fla. Aug. 18, 2022).  This decision and its implications were addressed in an article posted here on February 1, 2023, EXCESSIVE PREMIUMS & NOT INCLUDING MORTGAGORS ON LFPI POLICY:  CLAIMS ALLOWED.

The lesson from the case law is clear, it seems:  Before any lawsuit is filed by or on behalf of a homeowner forced to pay insurance premiums in such situations, look at the lender, rather than at the carrier; look at the mortgage contract rather than the force-placed insurance contract.

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.