Constitutional issues in confidentiality agreements in insurance law

November 24, 2014

Insurance LawBULLETIN:  WE INTERRUPT THIS BLOG TO BRING YOU THIS SPECIAL CONSTITUTIONAL REPORT ….

… FIRST AMENDMENT ABSOLUTELY PROHIBITS TOTALLY SECRET SETTLEMENTS AND AFFIDAVITS.

 Insurance Company Asking U.S. Court to Seal Settlement Agreement and Affidavit Must Show “Compelling” and “Narrowly Tailored” Reasons to Seal.  Stipulated Confidentiality Provision Held Not Enough Under U.S. Constitution:   Interstate Fire & Casualty Co. v. Dimensions Assurance Ltd., 2014 WL 6388334 (D. Md. November 13, 2014). 

Constitutional issues are often resolved in ordinary cases.  One such case involved an insurance company’s seemingly routine request to seal two documents.  One was a so-called confidential settlement agreement and the other was an affidavit containing sworn testimony.  Both documents were filed by the insurance company in support of its motion for summary judgment along with its request that they be totally sealed from public view.

The insurance company was seemingly justified in making its secrecy request.  The request was based on a “confidentiality provision,” i.e., the parties’ stipulated desire to keep their agreement out of public view.  U.S. Courts routinely grant stipulated Requests to Seal Court Records.  They grant these requests for secrecy mostly in litigation such as lender force-placed insurance and products liability cases.

However, the U.S. District Court broke the pattern in Interstate Fire & Casualty Co. v. Dimensions Assurance Ltd.  The Court denied the insurance company’s request to totally seal the affidavit and the settlement agreement.

After this unfavorable decision, the insurance company filed another copy of the settlement agreement including an unchanged “confidentiality provision”.  (We have PACER to thank for being able to see this provision.  PACER is the portal for public access to electronic records in U.S. Court Files.  The provision is paragraph 18 in Document 32-3 in that case, filed on November 21, 2014.)  The agreement’s provision for “confidentiality” is ordinary and usual.  It provides that it would be held confidential with four exceptions:

    1. “to carry out the terms and conditions” of the agreement;
    2. “for credentialing or licensing purposes”;
    3. “for tax, business, financial, legal or insurance purposes”; and
    4. “as required by law.”

In other words, the parties stipulated that their agreement would be kept secret in ordinary cases, like this one appeared to be.

Holding that the request to totally seal these documents based only on the parties’ confidentiality provision violated the First Amendment to the U.S. Constitution, the U.S. District Court followed established First Amendment law in that groundbreaking case.  The Court held:  “The public’s right of access to judicial documents and records is a First Amendment right as well as a common law tradition.”

That ruling determined the applicable standard for such requests to seal Court records in the United States.  Further, in this case, that ruling decided the outcome.  The Court held that the procedures for sealing Court documents where the First Amendment is implicated, even under Court Rules as in this case, require that reasons for sealing documents in Court Files must be “’necessitated by a compelling government interest’” and also be “’narrowly tailored to serve that interest.’”

Here, the plaintiff argued for secrecy only because its settlement agreement contained a confidentiality provision.  The District Court held that this secrecy stipulation by itself was not a good reason to seal an affidavit.  Further, “the presence of a confidentiality provision alone is not a sufficiently compelling reason to seal a settlement agreement.”

It is interesting that the plaintiff did not disclose the nature of the litigation when it requested that the affidavit and the settlement agreement be totally sealed.  “[A]lthough not mentioned by Plaintiff in the motion to seal, this case appears to be a dispute between two insurance companies over which company is responsible for the settlement costs incurred from a medical malpractice action between a hospital and at least one minor child.”  The Federal Judge wrote that a future request to seal the child’s sensitive information might meet with greater favor than the current request to seal testimony and a settlement:  “To protect the privacy of the child, who is not a party to this action, the Court may find it proper to redact sensitive information.”

But not in this case, not yet.  “However, the mere mention of a settlement agreement or a settlement amount would not be a compelling reason to seal an entire memorandum in support of a motion for summary judgment given the right of the public under the First Amendment to have access to summary judgment motions and materials filed in connection with the motions.”  [Emphasis added.]

Ordinary cases sometimes present extraordinary issues.  These issues are sometimes hidden from view.  This is such a case, in which a seemingly run-of-the-mill request to totally seal testimony and the terms of a settlement met a firm rejection because of the public’s First Amendment right to know what is contained in Court Files in the U.S.A.