Last summer an Arizona federal district court issued Cosgrove v. National Fire & Marine Insurance Company. The court held that insurer-appointed defense counsel, in a reservation of rights-defended case, used the attorney-client relationship to learn that his client did not use subcontractors on a project. When defense counsel did so, he knew, or had reason to know, that his client’s policy contained a Subcontractor Exclusion and that the insurer may attempt to deny coverage based on the exclusion. Thus, the court held that the insurer was estopped from asserting the Subcontractor Exclusion as a coverage defense. The court reached this decision despite the existence, or not, of subcontractors being a pretty routine, and obvious, and not secret, fact in a construction dispute.

Needless to say, this was a very troubling decision for insurers (and appointed defense counsel). Very shortly after the court’s decision the parties settled. As part of the settlement, the court agreed that it would vacate and seal the summary judgment decision. Sure enough, you can’t get the decision on Pacer and the insurer arranged for it to be removed from Lexis and Westlaw. I have a copy of the decision. I’m happy to send it to you. Just promise to bake me a cake with a file in it.

As I reported in the December issue of Coverage Opinions, on November 3rd, the policyholder advocacy group United Policyholders filed a Motion to Intervene to unseal and reinstate the decision. UP said in its brief that what the insurer did was an “impermissible tactic” – one “commonly employed by insurers in an attempt to reshape case law in their favor after an adverse ruling.” UP says that the insurer, faced with an adverse decision, is “seek[ing] to hide the court’s opinion.” The insurer filed a response, providing many reasons for denial of intervention – UP has no standing; the case is over; the judge agreed to vacate and seal the decision as a condition of settlement; the various requirements of the Intervention rule have not been satisfied….

Update: On January 18th the court, in a five and a bit page opinion, denied UP’s motion to intervene, citing such reasons as lack of jurisdiction, it is not a party to litigation that shares questions of law or fact to the case, untimeliness and prejudice to the parties.

Update 2: On February 8th UP filed a notice of appeal to the Ninth Circuit. Maybe the known-for-being-liberal Ninth Circuit will be sympathetic to UP’s objective here. But it seems UP chose a difficult test case given the delay in intervention.