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Vol. 8 - Issue 4
April 30, 2019


That Crazy Cosgrove Case Is Still Going (9th Circuit Oral Argument)


In April 2017 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 Subcontractors 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 the decision to be 86ed from Lexis and Westlaw.   I have a copy of the decision, which is now a collector’s item and I keep it in my special shoe box with my autographed picture of Gopher from The Love Boat and every $2 bill I’ve ever gotten in change.  [But, despite being vacated and sealed, the opinion is not exactly a state secret buried at Langley.  You can find it on the internet in less time than it takes to put cream cheese on a bagel.]

In November 2017 – many months after the case was over -- United Policyholders, a policyholder advocacy group, filed a Motion to Intervene to unseal and reinstate the decision.  UP said in its brief that what the insurer did is an “impermissible tactic” – one “commonly employed by insurers in an attempt to reshape case law in their favor after an adverse ruling.”  UP said 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, including UP has no standing; the case is over; the judge agreed to vacate and seal the decision as a condition of settlement; and the various requirements of the Intervention rule have not been satisfied.

On January 18, 2018, 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. 

Notably, in denying UP’s motion to intervene, the District Court stated: “Allowing United Policyholders to intervene in this case would be prejudicial to the parties.  While allowing United Policyholders to intervene might not affect the outcome of this case, intervention could potentially affect a material term of the parties’ settlement. United Policyholders wants to essentially un-do a settlement reached by the parties.  As part of their settlement, the parties agreed that the partial summary judgment orders would be sealed and vacated.  Whatever reason the parties had for reaching this agreement, they were entitled to make that agreement and a ‘potential prejudice to the parties is the possibility that modification [of the court’s partial summary judgment orders] would ‘unravel’ the original settlement.’”  
UP filed a notice of appeal to the Ninth Circuit.  Oral argument was held on April 16, 2019. 

I reviewed the parties’ briefs and listened to the oral argument on the Ninth Circuit website.  It makes for interesting listening.  It is also available in video format.  But I couldn’t get that to work.  I’ll try Netflix.     

In general terms, the competing positions, during the argument, were between the public’s right to have access to judicial documents versus, as maintained by the insurer, upsetting the benefit of the bargain that was struck between the settling parties.  Mixed in were lots of technical issues about intervention and a possible difference between unsealing the decision and reinstating it.   

But despite these public policy-esque arguments before the panel, the real issue here is simple -- a fight over reinstating a decision that policyholders view favorably and might want to cite in the future.  This is clear from UP’s motion to intervene.  UP’s Ninth Circuit brief: “The Insurance Company Buys and Buries the Adverse Ruling.”

Admittedly, UP’s counsel stated during the argument that he knew of no specific plans of UP to do so.  But anyone could do so, including UP in a future case.  Given how anomalistic the Cosgrove decision is, I’m not sure it has a lot of value going forward.  But I could certainly be wrong.  Even if I’m not, the Ninth decision may address, generally, the use of sealing and vacating decisions as part of a settlement.  Perhaps that is UP’s real objective here and not just bringing Cosgrove back from the witness protection program.   

The potential use of the decision, in future cases, was discussed during the argument, but it took a back seat to the more lofty arguments of the public’s right to access versus the parties’ benefit of the bargain.  To this listener, the panel showed a willingness to rule either way.


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