# COVIL CORPORATION v. USF&G COMPANY

> District Court, M.D. North Carolina · June 17, 2021

URL: https://www.frixlaw.com/law-library/cases/10253774

## Case

- **Court:** District Court, M.D. North Carolina
- **Decided:** June 17, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10253774

## How later opinions describe it (automated extraction)

- noting that Rule 26(e) provides for court-ordered supplementation and rejecting argument that exclusion represents sole remedy for Rule 26(e) violation
- discussing plaintiff’s burden to prove damages caused in context of unfair and deceptive trade practices claim
- observing that “[d]istrict courts are afforded broad discretion with respect to discovery”

## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
COVIL CORPORATION, by and through )
its duly appointed receiver, )
Peter D. Protopapas, )
)
Plaintiff, )
)
v. ) 1:18cv932
)
United States Fidelity and )
Guaranty Co., )
)
Defendant. )
MEMORANDUM OPINION AND ORDER
This case comes before the Court on “United States Fidelity
and Guaranty Company’s Motion to Compel Disclosure of Settlement
Agreements” (Docket Entry 399) (the “Motion”). For the reasons
that follow, the Court will grant the Motion in part, such that
Covil Corporation (“Covil”) must produce limited portions of its
settlement agreement with Zurich American Insurance Company
(“Zurich”).
BACKGROUND
As the Court (per United States District Judge Catherine C.
Eagles) previously explained:
For many years, Covil, a South Carolina corporation, sold
and distributed insulation products, including products
that contained asbestos. There are several personal
injury suits against Covil in North and South Carolina
relating to the distribution and/or installation of
asbestos-containing products. At least two courts — this
[C]ourt and a South Carolina state court — have entered
judgments against Covil.
Covil was dissolved in 1993. It appears undisputed that
Covil has no officers, directors, or employees capable of
taking the actions required to obtain counsel or file or
defend any lawsuit and that, until recently, three of
Covil’s insurers — Zurich, Sentry Casualty Company
[(“Sentry”)], and United States Fidelity and Guaranty
Company [(“USF&G”)] — controlled Covil’s defense in any
underlying asbestos litigation.
In October 2018, after a five-day trial in this Court, a
jury awarded $32,700,000 [(the “Finch Judgment”)]
to . . . Ann Finch, executor of the estate of Franklin
Finch, in a wrongful death suit against Covil [(the
“Finch Action”)]. The jury found that Mr. Finch
developed mesothelioma as a result of exposure to
asbestos-containing insulation Covil sold to his
employer.
Soon thereafter, in one of the lawsuits against Covil in
South Carolina state court, the plaintiffs moved for
appointment of a receiver. On November 2, 2018, the
state court [(the “Receiver Court”]) appointed a receiver
[(the “Receiver”)] to administer Covil’s assets.
Four days later, on November 6, 2018, Zurich brought the
instant lawsuit in this Court against Covil, other
insurers who may provide coverage to Covil, the Finch
estate, and several North Carolina citizens who are
claimants against Covil or the personal representatives
of claimants in asbestos suits in North Carolina federal
courts. [(Docket Entry 1 (the “Complaint”).)] The
[C]omplaint, as well as several counterclaims and cross[-
]claims filed by insurers, seeks declarations limiting
and apportioning among the insurers their obligations, if
any, to cover Covil’s defense costs and indemnify Covil
for the Finch [J]udgment and potential future judgments
relating to its sale of asbestos.
Zurich Am. Ins. Co. v. Covil Corp., No. 1:18-CV-932, 2019 WL
3205676, at *2 (M.D.N.C. July 16, 2019) (unpublished) (internal
citations, footnote, and italics omitted). As relevant here,
Sentry, USF&G, and TIG Insurance Company (“TIG”) (another entity
named as a defendant by Zurich) filed cross-claims against Covil.
2
(See Docket Entry 10, ¶¶ 90–113; Docket Entry 12, ¶¶ 73–99; Docket
Entry 19 at 14–15, ¶¶ 35–43.)
In answering the Complaint and the foregoing cross-claims,
Covil asserted counterclaims against Zurich and cross-claims
against Sentry, USF&G, TIG, and Hartford Accident and Indemnity
Company (“Hartford”), “each of [which] issued general liability
policies to Covil” (Docket Entry 155, ¶ 109). (Id., ¶¶ 99–176.)
More specifically, Covil alleged:
1) that Sentry, Zurich, and USF&G engaged in unfair and
deceptive practices by failing to act reasonably and in good faith
in connection with the Finch Action, in violation of North Carolina
General Statute Section 75-1.1 (id., ¶¶ 126–32);
2) that Zurich and USF&G breached their legal duties as
insurers (id., ¶¶ 134–35) and demonstrated “bad faith
by . . . [, a]mong other things, . . . failing or refusing to
resolve the Finch [Action] within their policy limits; by failing
to attempt in good faith to effectuate a prompt, fair, and
equitable settlement of the Finch [Action], even though liability
had become reasonably clear; by allowing Covil to receive an

adverse verdict of $32,700,000 in the Finch [Action]; by compelling
their insured to engage in litigation to recover amounts due under
the policies by failing to make any reasonable offers; by failing
to protect the interests of Covil and its claimants and creditors”
(id., ¶ 139 (italics omitted));
3
3) that the foregoing breach by Zurich and USF&G subjects them
to punitive damages (id., ¶¶ 142–50); and
4) that “Sentry, Zurich, and USF&G . . . breached their
contracts of insurance by, among other things[,] (i) failing to
resolve the Finch [Action] within policy limits; (ii) failing or
refusing to pay in full the Finch [Judgment]; (iii) failing
properly to treat claims as operations claims not subject to an
aggregate limit of liability; and (iv) failing to protect the
interests and rights of the claimants against Covil” (id., ¶ 158
(italics omitted)).
Covil further sought declaratory relief against Zurich,
Sentry, USF&G, TIG, and Hartford and lodged a third-party demand
against Penn National Insurance Company, all of which concerns the
policy periods and limits of coverage issued by the foregoing
insurers. (See id., ¶¶ 162–76.) Finally, Covil requested a
declaratory judgment stating that (i) “any judgment obtained
against Covil in a Covil asbestos suit be limited to all sums that
may be collected from . . . Zurich, Sentry, USF&G, TIG, and
Hartford, individually or collectively” (id., ¶ 179),

(ii) “punitive or exemplary damages are not awardable against the
Receiver or the Receiver acting on behalf of Covil pursuant to
South Carolina Code § 15-65-10” (id.), and (iii) “any judgment
obtained against Covil that is or may be subject to an aggregate
limit of any insurance policy or policies issued to Covil must
4
fairly and equitably take into account such other judgments that
may be outstanding at the time of such judgment” (id.).
The following week, Sentry filed a stipulation (Docket Entry
157) (“the Stipulation”) between Sentry and Covil clarifying that
(i) Sentry lacked a “dut[y] to defend and to indemnify Covil in the
[Finch] Action[]” (Docket Entry 155, ¶ 67; see also Docket Entry
157, ¶ 2), (ii) Sentry bore no liability for the Finch Judgment
(Docket Entry 157, ¶ 3), (iii) Covil’s unfair and deceptive
practices claim, as to Sentry, “does not include any conduct in
connection with the Finch [A]ction” (id., ¶ 4 (italics omitted)),
(iv) Covil’s breach-of-contract claim “is dismissed as to Sentry
only and with prejudice” (id., ¶ 5), and (v) Covil sought no
declaratory relief as to Sentry’s obligation to pay the Finch
Judgment (id., ¶ 6).
Thereafter, Covil entered into settlement agreements
(collectively, the “Settlement Agreements”) with all of the
entities against whom Covil had lodged cross-claims except for
USF&G. (See Docket Entries 260 (indicating settlement between
Covil and TIG), 261 (same, as to Hartford), 270 (same, as to

Sentry), 375 (same, as to Zurich (the “Zurich Settlement”)).) The
Court (per Judge Eagles) granted the motions to dismiss that the
parties filed in connection with the foregoing settlements.
(Docket Entries 264, 265, 272, 377.)1 During that same period, the
1 On each occasion, the Court dismissed the claims without
(continued...)
5
Court ruled on several motions for summary judgment (Docket Entries
206, 209, 211, 214), which presented, inter alia, the issue of “how
to allocate a loss occurring over time and over multiple insurance
policy periods and uninsured periods between and among the
insurance companies and the insured” (Docket Entry 334 at 20). The
Court awarded partial summary judgment to Zurich and USF&G on that
issue, denied the same to Covil, and dismissed all other
declaratory-judgment claims (over which the Court declined to
exercise subject-matter jurisdiction). (Id. at 28–29.) Finally,
at various times since the filing of the Complaint, some parties
have filed stipulations indicating the dismissal of certain claims.
(Docket Entries 47, 147, 300.) At bottom, after a lengthy and
somewhat complicated procedural history, only Covil’s (non-
declaratory) cross-claims against USF&G remain for consideration.
(See Docket Entry 361 (describing narrowed claims and granting
motion to reliagn Covil as plaintiff).)
The instant dispute arose when USF&G attempted to obtain from
Covil copies of the Settlement Agreements. (See Docket Entry 399;
see also Docket Entry 400 (supporting memorandum).) During

discovery, USF&G requested that Covil “[i]dentify any and all
payments [the Receiver] ha[d] received in [his] capacity as
appointed Receiver for Covil, including without limitation,
1(...continued)
prejudice. The parties later requested dismissal with prejudice
(Docket Entries 307, 316, 365, 383), which the Court likewise
granted (Docket Entries 327, 328, 370, 386).
6
payments relating to[] (a) this Action and (b) any Underlying
Action.” (Docket Entry 400-1, ¶ 8.) Covil (i) objected “to the
extent that [such interrogatory] assumes facts not in evidence and
seeks information not reasonably calculated to lead to the
discovery of admissible evidence” (id.), and (ii) responded that
“[t]he Receiver has not received any payments in his capacity as
Receiver to date” (id.).
In addition, USF&G asked that Covil produce “[a]ny and all
contracts [the Receiver] ha[d] entered into as Receiver for Covil”
(Docket Entry 400-2, ¶ 10) and “[a]ny and all Documents relating to
any and all payments [the Receiver] ha[d] received in [his]
capacity as appointed Receiver for Covil or in any way relating to
this Action and any Underlying Action” (id., ¶ 18). In response to
the former, Covil objected to the request as harassing, challenged
the relevance of the information sought, and asserted both
attorney-client privilege and work-product protection. (Id.,
¶ 10.) As to the latter request, after objecting based on
relevance, ambiguity, and breadth, Covil reiterated that “[t]he
Receiver ha[d] not received any payments in his capacity as

Receiver to date.” (Id., ¶ 18.)
Covil tendered the foregoing responses in January 2020 (Docket
Entry 400-1 at 12; Docket Entry 400-2 at 16); the settlements
occurred between March 2020 (Docket Entries 249-1 (Hartford), 249-2
(TIG), 269 (Sentry)) and January 2021 (Docket Entry 374-1
7
(Zurich)). Covil never supplemented its discovery responses to
reflect the settlements. (See Docket Entry 400 at 4.)
When the parties exchanged emails in April 2021 concerning
USF&G’s request that Covil produce the Settlement Agreements (see
Docket Entries 400-3, 400-4), Covil refused, noting that (i) the
Receiver Court had sealed the Settlement Agreements, (ii) the
Settlement Agreements remained confidential, (iii) TIG, Hartford,
and Sentry bore no responsibility for the Finch Judgment (such that
the agreements with those entities lack relevance to the remaining
claims), and (iv) USF&G had delayed in seeking to obtain the Zurich
Settlement in the Receiver Court. (See Docket Entry 400-4 at 2.)
The parties failed to resolve their dispute by means of a
telephonic “meet and confer” conference on April 21, 2021. (Docket
Entry 400 at 18.) Accordingly, USF&G has sought an order
compelling “[Covil] to produce the [S]ettlement
[A]greements . . . subject to the terms of the protective order
entered in this action” (id. at 15; see also Docket Entry 203
(referenced protective order)). Covil opposed the Motion (Docket
Entry 405), and USF&G replied (Docket Entry 407).

DISCUSSION
I. Relevant Standards
A. The Scope and Conduct of Discovery
“The purpose of discovery is to provide a mechanism for making
relevant information available to the litigants.” Fed. R. Civ. P.
8
26 advisory committee’s notes, 1983 Amendment. Under Federal Rule
of Civil Procedure Rule 26 (“Rule 26”),
[p]arties may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s
claim or defense and proportional to the needs of the
case, considering the importance of the issues at stake
in the action, the amount in controversy, the parties’
relative access to relevant information, the parties’
resources, the importance of the discovery in resolving
the issues, and whether the burden or expense of the
proposed discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1). “The parties and the [C]ourt have a
collective responsibility to consider the proportionality of all
discovery and consider it in resolving discovery disputes.” Fed.
R. Civ. P. 26 advisory committee’s notes, 2015 Amendment; see also
id. (explaining that Rule 26 imposes an “obligation o[n] the
parties to consider the[ proportionality] factors in making
discovery requests, responses, or objections”). In turn, relevancy
“essentially involves a determination of how substantively the
information requested bears on the issues to be tried.” Mills v.
East Gulf Coal Preparation Co., 259 F.R.D. 118, 131 (S.D.W. Va.
2009) (internal quotation marks omitted). “Information within this
scope of discovery need not be admissible in evidence to be
discoverable.” Fed. R. Civ. P. 26(b)(1).
Nevertheless, “the simple fact that requested information is
discoverable . . . does not mean that discovery must be had. On
its own initiative or in response to a motion for protective order
under Rule 26(c), a district court may limit [discovery] . . . .”
Nicholas v. Wyndham Int’l, Inc., 373 F.3d 537, 543 (4th Cir. 2004);
9
see also Fed. R. Civ. P. 26(c)(1) (“The court may, for good cause,
issue an order to protect a party or person from annoyance,
embarrassment, oppression, or undue burden or expense . . . .”).
Moreover,
the [C]ourt must limit the frequency or extent of
discovery otherwise allowed by the[ Federal Rules of
Civil Procedure (the “Rules”)] or by local rule if it
determines that:
(i) the discovery sought is unreasonably cumulative
or duplicative, or can be obtained from some other
source that is more convenient, less burdensome, or
less expensive;
(ii) the party seeking discovery has had ample
opportunity to obtain the information by discovery
in the action; or
(iii) the proposed discovery is outside the scope
permitted by Rule 26(b)(1).
Fed. R. Civ. P. 26(b)(2)(C). “District courts enjoy nearly
unfettered discretion to control the timing and scope of
discovery.” Hinkle v. City of Clarksburg, 81 F.3d 416, 426 (4th
Cir. 1996); accord Cook v. Howard, 484 F. App’x 805, 812 (4th Cir.
2012) (observing that “[d]istrict courts are afforded broad
discretion with respect to discovery”).
“The Rules provide a number of discovery devices, including
[interrogatories and] requests for production of documents . . . .”
Kinetic Concepts, Inc. v. ConvaTec Inc., 268 F.R.D. 226, 240
(M.D.N.C. 2010). Federal Rule of Civil Procedure 33 (“Rule 33”)
requires that a litigant answer each interrogatory “separately and
fully in writing under oath,” Fed. R. Civ. P. 33(b)(3), and
“state[] with specificity,” Fed. R. Civ. P. 33(b)(4), any grounds
for objection. In turn, Federal Rule of Civil Procedure 34 (“Rule
10
34”) requires that a litigant’s response to a request for
production of documents “must either . . . permit[ inspection] as
requested or state with specificity the grounds for objecting to
the request, including the reasons.” Fed. R. Civ. P. 34(b)(2)(B).
B. The Duty to Supplement
Rule 26 imposes a continuing obligation on litigants, such
that
[a] party . . . who has responded to an
interrogatory[ or] request for production . . . must
supplement or correct its . . . response . . . in a
timely manner if the party learns that in some material
respect the . . . response is incomplete or incorrect,
and if the additional or corrective information has not
otherwise been made known to the other parties during the
discovery process or in writing . . . .
Fed. R. Civ. P. 26(e)(1)(A). Alternatively, courts may order
supplementation. Fed. R. Civ. P. 26(e)(1)(B). The duty to
supplement continues beyond the close of discovery. See
Volumetrics Med. Imaging, LLC v. Toshiba Am. Med. Sys., Inc., No.
1:05CV955, 2011 WL 2470460, at *2 n.3 (M.D.N.C. June 20, 2011)
(unpublished); accord Medline Indus. v. C.R. Bard, Inc., No.
17C7216, 2021 WL 809734, at *3–4 (N.D. Ill. Mar. 3, 2021)
(unpublished); Weare v. Bennett Bros. Yachts, No. 7:17-CV-155, 2019
WL 12267845, at *4 (E.D.N.C. June 12, 2019) (unpublished); Star
Direct Telecom, Inc. v. Global Crossing Bandwidth, Inc., 272 F.R.D.
350, 358 (W.D.N.Y. 2011). “Excluding documents created after the
close of discovery from the duty to supplement would encourage
parties to wait until after discovery has closed to create
11
documents containing potentially damaging information.” Iweala v.
Operational Techs. Servs., Inc., Civ. Action No. 04-02067, 2010 WL
11583114, at *2 (D.D.C. Apr. 13, 2010) (unpublished).
If a party fails to supplement as required, “the party is not
allowed to use that information . . . to supply evidence on a
motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1).
“[T]he automatic sanction of exclusion provides a strong inducement
for disclosure of material that the disclosing party would expect
to use as evidence.” Southern States Rack & Fixture, Inc. v.
Sherwin-Williams Co., 318 F.3d 592, 595 n.2 (4th Cir. 2003)
(internal quotation marks omitted). However, as discussed in more
detail in the following subsection, certain circumstances may call
for remedies other than exclusion. See Star Direct Telecom, 272
F.R.D. at 358 (noting that Rule 26(e) provides for court-ordered
supplementation and rejecting argument that exclusion represents
sole remedy for Rule 26(e) violation); see also Fed. R. Civ. P. 37
advisory committee’s notes, 1993 Amendment, Subdivision (c)
(“Preclusion of evidence is not an effective incentive to compel

disclosure of information that, being supportive of the position of
the opposing party, might advantageously be concealed by the
disclosing party.”).

12
C. Motions to Compel
Although Rule 26 allocates “primary responsibility for
conducting discovery” to litigants, Fed. R. Civ. P. 26 advisory
committee’s notes, 1983 Amendment, Subdivision (g), it likewise
“acknowledges the reality that [the discovery process] cannot
always operate on a self-regulating basis,” Fed. R. Civ. P. 26
advisory committee’s notes, 1983 Amendment, Subdivision (b). “The
Rules thus afford a number of mechanisms for litigants to seek
judicial intervention in discovery disputes, including authorizing
‘[a] party seeking discovery [to] move for an order compelling an
answer, designation, production, or inspection.’” Kinetic
Concepts, 268 F.R.D. at 243 (quoting Fed. R. Civ. P. 37(a)(3)(B)).
Rule 37 allows such a motion when “a party fails to answer an
interrogatory submitted under Rule 33,” Fed. R. Civ. P.
37(a)(3)(B)(iii), or when “a party fails to produce
documents . . . as requested under Rule 34,” Fed. R. Civ. P.
37(a)(3)(B)(iv). The party opposing discovery generally bears the

burden on a motion to compel. Kinetic Concepts, 268 F.R.D. at
243-44 (collecting cases).
Furthermore, as mentioned above, Rule 37 provides multiple
avenues of relief for a Rule 26(e) violation, some of which a
litigant must seek by motion. In that regard, Rule 37 authorizes
sanctions “[i]n addition to or instead of [exclusion],” Fed. R.
Civ. P. 37(c)(1), which “apply when a party fails to disclose
13
evidence helpful to an opposing party,” Southern States, 318 F.3d
at 595 n.2; see also 7 Moore’s Federal Practice, Civil
§ 37.60[2][b] (explaining that alternative sanctions “provide
courts with effective means to discipline parties who might be
tempted not to disclose evidence that would be helpful to their
opponents”). In that regard, Rule 37 expressly empowers a court to
fashion “other appropriate sanctions,” Fed. R. Civ. P. 37(c)(1)(C),
to include
(i) directing that the matters embraced in the order or
other designated facts be taken as established for
purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from
introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is
obeyed;
(v) dismissing the action or proceeding in whole or in
part; [and]
(vi) rendering a default judgment against the disobedient
party . . . .
Fed. R. Civ. P. 37(b)(2)(A)(i)–(vi); see also Fed. R. Civ. P.
37(c)(1)(C) (approving of “any of the orders listed in Rule
37(b)(2)(A)(i)—(vi)”)). The Court may award such relief “on motion
and after giving an opportunity to be heard.” Fed. R. Civ. P.
37(c)(1).
II. Analysis
A. Timeliness
USF&G has argued that Covil must produce the Settlement
Agreements in accordance with Rule 26(e). (Docket Entry 400 at
14
5-6.) In response, Covil has contended that the Motion merits
denial because USF&G failed to move for relief before the discovery
deadline. (Docket Entry 405 at 3-4 (noting closure of discovery on
August 10, 2020).) In reply, USF&G has maintained that (i) a
litigant properly may file a motion to compel after the close of
discovery (Docket Entry 407 at 3-4), (ii) USF&G’s requests during
discovery encompassed the Settlement Agreements (id. at 3),
(iii) Covil possesses an ongoing obligation to supplement its
discovery responses (id.), and (iv) USF&G acted prudently in
seeking other means of disclosure before filing the Motion (id. at
5-6).
Although a party generally must file a motion to compel before
the close of discovery, see RDLG, LLC v. RPM Group, LLC, No.
1:10cv204, 2012 WL 3202851, at *1 (W.D.N.C. Aug. 6, 2012)
(unpublished), that rule merits less rigid application in the
context of motions asserting Rule 26(e) violations, see generally
Lane v. Lucent Techs., Inc., No. 1:04CV789, 2007 WL 2079879, at *3
(M.D.N.C. July 13, 2007) (unpublished) (“[Rule 37] allows a court
to establish a reasonable time for a party to file [a] motion [to
compel].”). Indeed, “Rule 26 imposes no requirement, express or
implied, that a motion to compel precede a court’s imposition of a
sanction .. . for failure to supplement ... .” Alldread v. City
of Grenada, 988 F.2d 1425, 1436 (5th Cir. 1993). Other courts have
granted relief for Rule 26(e) violations even when parties first
raised the issue after the close of discovery. See, e.g., Star
15

Direct Telecom, 272 F.R.D. at 358–59 (deeming motion to compel
supplementation “not untimely because the duty to supplement
continues even following the close of discovery” and ordering
supplementation); Iweala, 2010 WL 11583114, at *1, 3 (ordering
supplementation upon consideration of motion to compel filed more
than four years after close of discovery).
Here, because the Motion relates to Rule 26(e)
supplementation, an obligation that continues after the close of
discovery, such deadline does not render the Motion untimely.
Although USF&G became aware of three of the four Settlement
Agreements (all but Zurich’s) during the discovery period (see
Docket Entries 260, 261, 270 (Covil’s motions to dismiss from March
2020 indicating settlement with TIG, Hartford, and Sentry,
respectively)), Covil bore the obligation to supplement its
discovery responses even absent a motion by USF&G, Wright v. Touhy,
No. 97C742, 2003 WL 22439864, at *4 (N.D. Ill. Oct. 28, 2003)
(unpublished) (“The duty to supplement . . . lingers on without
subsequent solicitation.”). As concerns the Zurich Settlement,
which occurred in January 2021 (several months after the close of

discovery), Covil has failed to show that USF&G delayed in seeking
relief (see Docket Entry 405 at 4); moreover, USF&G has proffered
reasonable explanations for waiting until April 2021 to file the
Motion (see Docket Entry 407 at 5–6). Accordingly, under the
circumstances, the Court deems the Motion timely.
16
B. Relevance
In seeking to obtain the Settlement Agreements, USF&G has
asserted its entitlement “to set off any damages by the amounts of
any previous settlements between [Covil] and other responsible
parties.” (Docket Entry 400 at 6.) In light of its corresponding
burden “to show that [Covil] has received settlement consideration
from another responsible party” (id. at 7), USF&G has maintained
that “Covil cannot prevent USF&G from presenting such evidence by
withholding this information prior to trial” (id.). Per USF&G, the
four Settlement Agreements remain relevant to “the issue [of]
whether Covil received compensation in exchange for a release that
covered claims relating to the Finch [J]udgment” (id. at 13
(italics omitted); see also Docket Entry 407 at 8–9).
Additionally, USF&G has invoked the North Carolina rule foreclosing
duplicative recoveries and noted that disclosure would increase the
likelihood of settlement. (Docket Entry 400 at 8–9.) Conversely,
Covil has resisted disclosure, arguing that the Settlement

Agreements with TIG, Hartford, and Sentry bear no relevance
“because they do not allocate funds to disputes arising out of
Zurich’s or USF&G’s conduct in [the Finch Action]” (Docket Entry
405 at 1).
“Discovery under the [] Rules . . . is broad in scope and
freely permitted.” Carefirst of Md., Inc. v. Carefirst Pregnancy
Ctrs., Inc., 334 F.3d 390, 402 (4th Cir. 2003); see also OptoLum,
17
Inc. v. Cree, Inc., No. 1:17CV687, 2018 WL 6834608, at *4 (M.D.N.C.
Dec. 28, 2018) (unpublished) (“[N]otwithstanding the limitations
[of Rule 26(b)(1) and (b)(2)(C)], ‘discovery under the Federal
Rules of Civil Procedure is broad in scope and freely permitted.’”)
(internal brackets omitted) (quoting Carefirst, 334 F.3d at 402).
In the context of motions to compel, courts have allowed non-
settling parties to obtain settlement agreements between other
litigants when such agreements relate to the issue of damages and
the potential for a setoff. See, e.g., Barclay v. Gressit, No.
2:12–cv–156, 2013 WL 3819937, at *3 (D. Me. July 24, 2013)
(unpublished) (“Courts have readily discerned the relevance to a
non-settling joint tortfeasor of information regarding a settlement
agreement between a plaintiff and a settling joint tortfeasor when,
pursuant to applicable state law, the non-settling defendant is
entitled to a setoff of the settlement amount from any verdict in
favor of the plaintiff . . . .”).
Here, whether the Settlement Agreements qualify as relevant
depends (at least in part) on the substantive law giving rise to
“any party’s claim or defense,” Fed. R. Civ. P. 26(b)(1). See

Barclay, 2013 WL 3819937, at *3 (referencing, in assessing
relevance, “applicable state law” (emphasis added)). However,
neither USF&G nor Covil has confronted the choice-of-law issue (at
least in connection with the Motion). (See Docket Entry 400 at 6–8
& n.5 (relying on North Carolina law without discussion of choice-
of-law principles); Docket Entry 405 at 5–7 (focusing solely on
18
scope of Settlement Agreements); see also Docket Entry 405 at 4-6
(invoking North Carolina law as to (statutory) “deceptive trade
practices” claim without mentioning law applicable to bad-faith and
breach-of-contract claims).) Given the lack of guidance from the
parties and their apparent agreement that North Carolina law
governs (at least some of) Covil’s claims and USF&G’s defenses, the
Court assumes, at this stage, that North Carolina substantive law
applies.’
Under North Carolina law, Covil bears the burden to prove its
damages in order to recover in connection with any of its remaining
claims against USF&G. See Walker v. Branch Banking & Tr. Co., 133

2 “A federal court exercising diversity jurisdiction must
apply the choice[-Jof[-]law rules of the state in which it sits.”
Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95, 100
(4th Cir. 2013). When initiating the original declaratory-judgment
action, Zurich invoked this Court’s diversity jurisdiction (Docket
Entry 1, @ 12), and Covil has alleged that complete diversity
exists between itself and USF&G (see Docket Entry 155, TI 99, 102).
As far as Covil’s bad-faith claim, “North Carolina recognizes bad
faith refusal to settle an insurance claim as a tort .. . [and]
uses the law of the situs test to determine the choice of law for
tort claims.” Martinez v. National Union Fire Ins. Co., 911 F.
Supp. 2d 331, 336 (E.D.N.C. 2012). Regarding Covil’s contractual
claim, “[u]nder North Carolina’s choice-of-law rules, a contract is
governed by the law of the place where the contract was made.”
Sager v. Standard Ins. Co., No. 5:08-CV-628, 2011 WL 13253913, at
*5 (E.D.N.C. Aug. 26, 2011) (unpublished) (internal quotation marks
omitted). Based on the Motion and associated briefing, the Court
discerns no basis to apply the substantive law of a jurisdiction
other than North Carolina. Even if another state’s law governed
one or more of Covil’s claims, that circumstance matters only if
some difference exists between that jurisdiction’s law and North
Carolina law which would affect the outcome of the Motion, see
Perini/Tompkins Joint Venture, 738 F.3d at 101. The possibility of
some other law governing and such law altering the outcome appears
unlikely.
19

N.C. App. 580, 585, 515 S.E.2d 727, 730 (1999) (discussing
plaintiff’s burden to prove damages caused in context of unfair and
deceptive trade practices claim); State Props., LLC v. Ray, 155
N.C. App. 65, 76, 574 S.E.2d 180, 188 (2002) (“The party seeking
damages bears the burden of proving them in a manner that allows
the fact-finder to calculate the amount of damages to a reasonable
certainty.”). Furthermore, “North Carolina recognizes the common
law principle of ‘one recovery’ for each injury, even where the
legislature has authorized damages that are punitive in character.”
Ferris v. Haymore, 967 F.2d 946, 958 (4th Cir. 1992) (internal
citation omitted) (citing N.C. Gen. Stat. § 1B-4). In particular,
[w]hen a release or a covenant not to sue or not to
enforce judgment is given in good faith to one of two or
more persons liable in tort for the same injury . . . [,]
it reduces the claim against the others to the extent of
any amount stipulated by the release or the covenant, or
in the amount of the consideration paid for it, whichever
is the greater . . . .
N.C. Gen. Stat. § 1B-4. “Nonsettling tortfeasors, however, are
entitled to a setoff only for damages that are awarded for the same
injury for which the settling defendants compensated the
plaintiff.” Zivitz v. Greenberg, 279 F.3d 536, 539 (7th Cir. 2002)
(interpreting materially identical provision of Illinois law).
Although the foregoing statute applies only to tort claims, similar
concepts prevent double recovery in North Carolina contract
actions. See Duke Univ. v. St. Paul Mercury Ins. Co., 95 N.C. App.
663, 681, 384 S.E.2d 36, 47 (1989).
20
To determine whether one (or more) of the Settlement
Agreements potentially concerns Covil’s damages and the
availability of a setoff, the Court considers the nature and scope
of Covil’s claims as well as the (purported) reach of the
Settlement Agreements. As mentioned previously, as to Zurich and
USF&G, Covil alleged, inter alia, “unfair and deceptive acts or
practices in violation of [North Carolina General Statute Section]
75-1.1” (Docket Entry 155, {9% 127; see also id., IT 126-32) and
asserted claims for bad faith (id., 133-41), punitive damages
(id. FI 142-50), and breach of contract (id. (7 151-61). As to
TIG, Hartford, and Sentry,°* Covil sought only declaratory relief
(see Docket Entry 155, 162-76), which the Court (per Judge
Eagles) denied at summary judgment (see Docket Entry 334 at 29).
In other words, TIG, Hartford, and Sentry never bore potential
liability for the only claims that remain for consideration, those
relating to the Finch Action. (See Docket Entry 361 at 1
(identifying primary issue, after summary judgment, as “[Zurich’s
and USF&G’s] conduct in handling the Finch negotiations and trial”
(italics omitted) ); see also Docket Entry 405 at 2
(“[Covil] . . . never sued TIG or Hartford for bad faith.”).)
Although USF&G has maintained that “[Covil] sued [TIG, Hartford,
and Sentry] in this action, and each had potential liability to
Covil when they settled” (Docket Entry 400 at 11), such argument

3 As discussed, the Stipulation clarifies (and narrows) the
claims that Covil lodged against Sentry. (See Docket Entry 157.)
21

ignores the fact that Covil excluded those insurers from the claims
that USF&G faces and as to which USF&G wishes to explore a
potential setoff (see id. at 11–14). The (limited) relief Covil
sought against TIG, Hartford, and Sentry undermines USF&G’s attempt
to connect the Settlement Agreements with those entities to the
distinct, Finch-related claims pending against USF&G.
Moreover, consistent with the scope of its counter- and cross-
claims, Covil has insisted that “[t]he Sentry, TIG and Hartford
[S]ettlement [A]greements do not assign any portion of settlement
funds to the Finch lawsuit because those carriers do not bear the
burden of the Finch lawsuit.” (Docket Entry 405 at 5 (italics
omitted).) Instead, Covil has stated that such
“[S]ettlement[ Agreements] resolve the broad disputes . . . as to
the general responsibilities arising from the insurance policies
issued by [Sentry, TIG, and Hartford] to Covil” (id. at 5–6). In
that regard, such settlements resulted in the creation of a
qualified settlement fund (“QSF”). (Id. at 6.) The order from the
Receiver Court approving those settlements explains that TIG,
Hartford, and Sentry bought back the insurance policies they had

issued to Covil and that the proceeds from those sales will fund
asbestos-related suits involving Covil. (Docket Entry 405-1 at 11
(“As part of the Settlement Agreements, Hartford, TIG, and Sentry
have offered to buy back any policies that it or its predecessors
may have sold to Covil Corporation or Covil Corporation’s
predecessors. Doing so will allow the insurance assets to be
22
liquidated for use in the administration of the Receivership, and
by the QSF for the defense of asbestos bodily injury suits and
payment of asbestos bodily injury claims.”).)4 As a result, the
Court deems the TIG, Hartford, and Sentry Settlement Agreements
irrelevant to the claims pending against USF&G (and the potential
for a setoff in connection with those claims).
In contrast to its position with respect to the TIG, Hartford,
and Sentry Settlement Agreements, Covil has acknowledged that the
Zurich Settlement “account[s] for . . . claims related to any
alleged bad faith on the part of Zurich related to the underlying
Finch verdict” (Docket Entry 405 at 3 (italics omitted)). Covil’s
sole challenge to the relevance of the Zurich Settlement depends on
an agreement between USF&G and Zurich in the Finch Action. (See
id. at 7.) More specifically, Covil has relied on an email
communication documenting a cost-sharing agreement between Zurich
and USF&G in the Finch Action, under which USF&G assumed 88.89% of
the indemnity obligation. (Id. (discussing Docket Entry 405-6 at

4 Although USF&G has expressed its desire to “verify” such
assertions via disclosure of the Settlement Agreements (Docket
Entry 407 at 8), neither a litigant’s “hunch,” nor the mere
“potential” that some undisclosed relevant evidence exists “is
[]sufficient to pull the requests within the realm of appropriate
proportionality per Rule 26(b)(1),” Griggs v. Vanguard Grp., Inc.,
No. CIV-17-1187, 2019 WL 2524837, at *4 (W.D. Okla. June 18, 2019)
(unpublished). See also Anthony v. United States, 667 F.2d 870,
880 (10th Cir. 1981) (“A defendant may not use discovery as a
fishing expedition.”).
23
2).)5 However, Covil has provided no support for the notion that
such agreement conclusively determines the extent to which the
Zurich Settlement limits Covil’s potential recovery from USF&G.
(See id.) Accordingly, insofar as USF&G may advocate for a
different setoff calculation, the amount of the Zurich Settlement
possesses relevance.
However, USF&G has failed to show that other parts of the
Zurich Settlement bear on any pertinent issue in this action. Even
absent an objection by Covil on such grounds, the Court,
independently, “must limit the . . . extent of discovery otherwise
allowed by these [R]ules . . . if it determines that . . . the
proposed discovery is outside the scope permitted by Rule
26(b)(1),” Fed. R. Civ. P. 26(b)(2)(C)(iii). See Lawson v. Spirit
AeroSystems, Inc., No. 18-1100, 2020 WL 1813395, at *6 (D. Kan.
Apr. 9, 2020) (unpublished) (holding that Rule 26(b)(2)(C) imposes
“independent ongoing obligation” on courts). Upon exercise of its
discretion in that regard, the Court discerns no basis to compel
disclosure of the entire Zurich Settlement; USF&G remains entitled
to discover only the amount of settlement and any provisions

bearing on allocation of the settlement amount to the Finch

5 Although the email communication appears to originate from
an employee of “Travelers” (Docket Entry 405-6 at 2), USF&G’s
corporate disclosure statement identifies The Travelers Companies,
Inc., as a parent corporation (see Docket Entry 24 at 1).
24
Action.6 Given the conclusion as to the irrelevance of the other
Settlement Agreements, the rest of this Memorandum Opinion will
consider the parties’ remaining arguments as to the Zurich
Settlement only.
C. Timing of Disclosure
USF&G has contended that Covil must produce the Zurich
Settlement before trial, as USF&G must “present such evidence at
trial, prior to judgment.” (Docket Entry 400 at 7.) According to
Covil, the Motion remains premature under North Carolina law
because “set-offs do not become relevant unless and until there is
a verdict against USF&G” (Docket Entry 405 at 1). In reply, USF&G
has acknowledged that some courts have delayed disclosure until
after a verdict on liability but has characterized pretrial
disclosure as the preferable rule (favored by the majority of
courts), noting that such practice promotes settlement and
conserves judicial resources. (See Docket Entry 407 at 6–8.)

“Under Rule 26(b), it is relevance[,] not admissibility[,]
that drives the inquiry as to whether the information is
discoverable.” Innovative Therapies, Inc. v. Meents, 302 F.R.D.
364, 377 (D. Md. 2014) (internal quotation marks omitted).
6 The self-executing sanction of exclusion will apply to any
information not disclosed by Covil, in the event that Covil later
attempts to use such information to reduce the setoff amount. See
Fed. R. Civ. P. 37(c)(1). For example, if USF&G argues that the
entire amount paid under the Zurich Settlement qualifies for
setoff, Covil could not point in rebuttal to any portion of the
Zurich Settlement it failed to disclose to USF&G, unless it could
satisfy an exception to Rule 37(c)(1)’s exclusion provision.
25
“Generally speaking, discovery as to damages is proper,” Federal
Deposit Ins. Corp. v. Credit Suisse Sec. (USA) LLC, No.
2:12-CV-784, 2016 WL 1047380, at *6 (M.D. Ala. Mar. 10, 2016)
(unpublished) (internal quotation marks omitted), notwithstanding
the fact that, “in many cases the issue of liability is tried
separately from the issue of damages,” 8 Charles Alan Wright, et
al., Federal Practice & Procedure § 2008.4 (3d ed. Apr. 2021
update). When “the issue of damages is truly separate from the
question of liability,” id., parties may seek to delay “discovery
pertaining to damages . . . until after liability has been
established,” id. Applying the foregoing principles, most courts
have allowed access to settlement agreements and other information
bearing on damages during the regular course of discovery. see
Wilshire v. WFOI, LLC, No. 4:13-cv-3614, 2015 WL 1643456, at *3
(D.S.C. Apr. 14, 2015) (unpublished) (collecting cases); see also
Federal Deposit Ins. Corp., 2016 WL 1047380, at *6; Barclay, 2013
WL 3819937, at *4; but see Beuster v. Equifax Info. Servs., Civ.
Action No. 2005-2816, 2006 WL 8456998, at *3 (D. Md. Sept. 1, 2006)
(unpublished) (denying as premature motion to compel settlement
agreement).
Here, Covil has not indicated that the Court (per Judge
Fagles) previously approved a bifurcated discovery plan. (See
Docket Entry 405 at 4-5; see also Docket Entries 109 (scheduling
order), 129 (modification of scheduling order), 139 (modification
of scheduling order), 145 (modification of scheduling order), 284
26

(modification of scheduling order), 321 (modification of scheduling
order).)7 Instead, Covil has represented that North Carolina law
renders USF&G’s request premature, since a setoff becomes relevant
only after a verdict establishing liability. (See id.) However,
the notion that resolution of liability issues must precede
resolution of damages issues holds true in virtually all cases and
generally poses no obstacle to discovery on the latter issues (in
the absence of bifurcation). See 8 Charles Alan Wright, et al.,
Federal Practice & Procedure § 2008.4 (3d ed. Apr. 2021 update).
Because “[t]here has been no bifurcation of trial on liability and
damages in this case,” Barclay, 2013 WL 3819937, at *4, the Court
declines to delay compelled production of information bearing on
Covil’s damages and the potential setoff.
D. Confidentiality
In response to Covil’s (pre-Motion) position that the Receiver
Court’s seal of the Zurich Settlement and the confidentiality
provisions contained therein justify Covil’s nondisclosure (Docket

Entry 400-4 at 2), USF&G has insisted that the protective order
(Docket Entry 203) in this action adequately mitigates any such
concerns. (Docket Entry 400 at 10–11; see also Docket Entry 407 at
10–12.) Nonetheless, Covil has maintained that the Receiver Court
deemed the Zurich Settlement “confidential and placed [it] under
seal” (Docket Entry 405 at 1) and further indicated that Zurich has
7 In fact, the Court (per Judge Eagles) denied bifurcation as
to other aspects of the case. (See Docket Entry 203.)
27
“object[ed] to any disclosure of the[ Zurich Settlement] to USF&G”
(id. at 7). Moreover, Covil has represented that “the Receiver[]
Court adjudicates any matters relating to the confidential
[S]ettlement [A]greements, meaning Covil cannot disclose the
[Zurich S]ettlement [] without the Receiver[] Court’s approval.”
(Id. at 8.) Replying to those contentions, USF&G has argued that
(i) Covil previously envisioned potential disclosure of the Zurich
Settlement (Docket Entry 407 at 10 (discussing Covil’s position in
its motion to seal before the Receiver Court)), (ii) the Receiver
Court’s continuing jurisdiction over the QSF does not deprive this
Court of authority to manage discovery in this action (id. at
10–11), and (iii) no settlement privilege protects the Zurich
Settlement from disclosure (id. at 11).
Turning first to Covil’s refusal to produce the Zurich
Settlement in light of its confidential nature, “courts within the
Fourth Circuit have generally declined to recognize a federal
settlement privilege,” Townsend v. Nestle Healthcare Nutrition,
Corp., No. 3:15-cv-6824, 2016 WL 1629363, at *5 (S.D.W. Va. Apr.

22, 2016) (unpublished) (collecting cases). Accordingly,
settlement agreements remain discoverable to the extent they
possess relevance under Rule 26(b). Levick v. Maimonides Med.
Ctr., No. 08CV03814, 2011 WL 1673782, at *2 (E.D.N.Y. May 3, 2011)
(unpublished). For that reason, “confidentiality provisions
inserted by parties into private settlement agreements do not
immunize those agreements from discovery.” Rocky Aspen Mgmt. 204
28
LLC v. Hanford Holdings LLC, 394 F. Supp. 3d 461, 464 (S.D.N.Y.
2019). Here, the Court has deemed (part of) the Zurich Settlement
relevant (for discovery purposes). Covil has offered no reason why
the supposed confidentiality provision exempts that document from
otherwise applicable discovery rules. (See Docket Entry 405 at
7–9.)
To the extent Covil has suggested that the Receiver Court’s
order approving (and sealing) the Zurich Settlement prohibits Covil
from any disclosure of the same, the text of the order does not
support that position. Sealing orders differ from gag orders. See
In re Sealing & Non-Disclosure, 562 F. Supp. 2d 876, 880 (S.D. Tex.
May 30, 2008) (“Judicial gag orders impinge upon freedom of speech
and press under the First Amendment, and must pass muster under
well-established constitutional case law. On the other hand,
sealed judicial orders conflict with the common law tradition of
public access to judicial proceedings, and are typically evaluated
under more flexible common law rules.”). Importantly, “the evident
purpose of [a sealing] order is to limit public access to th[e]
records [subject to the seal], rather than to provide a shield to
a litigant to frustrate otherwise relevant discovery.” Romano v.
SLS Residential, Inc., 298 F.R.D. 103, 110 (S.D.N.Y. 2014); see
also In re Murphy-Brown, LLC, 907 F.3d 788, 796 (4th Cir. 2018)
(observing that “gag orders in civil cases are quite rare”).
Here, the Receiver Court granted a motion by Covil, the QSF,
and Zurich to maintain the Zurich Settlement under seal, after
29
concluding that “sealing the [Zurich S]ettlement [] is proper and
necessary under Rule 41.1(c) of the South Carolina Rules of Civil
Procedure.” (Docket Entry 405-2 at 5.) The Receiver Court noted
the lack of public interest in the specific terms of the Zurich
Settlement and the potential harm that premature disclosure could
cause. (Id. at 5–6.) In approving the Zurich Settlement, the
Receiver Court referenced its “discretion to dispose of the
Receivership’s assets and direct disposition of those assets” and
declared its “continuing jurisdiction over the QSF and all of its
assets.” (Id. at 7.) However, the Receiver Court never forbid
Covil from revealing the terms of the Zurich Settlement and
expressed no position on whether (or under what circumstances)
disclosure could occur. (See id. at 2–10.)
In other words, the Receiver Court issued a sealing order, not
a gag order. Covil’s apparent willingness to produce the Zurich
Settlement for in camera review (Docket Entry 405 at 9) undercuts
its contention that the Receiver Court forbade disclosure in any
form. “As [a] part[y] to this case, [Covil is] obliged to produce
documents that are responsive to [USF&G’s] discovery requests,
regardless of [its] agreement with [Zurich], acceded to by the
[Receiver C]ourt, to protect such information with a[ sealing
order].” DAC Surgical Partners, P.A. v. United Healthcare Servs.,
Civ. Action No. H-11-1355, 2013 U.S. Dist. LEXIS 186292, at *8
(S.D. Tex. Dec. 16, 2013) (unpublished). Although the Zurich
Settlement evidently required the approval of the Receiver Court
30
and thus differs in some respects from purely private settlement
agreements, such judicial involvement derives from Covil’s status
as a dissolved corporation in receivership and does not entitle the
Zurich Settlement to absolute protection from production in
litigation.8 Allowing for limited disclosure under the
circumstances protects Covil’s and Zurich’s privacy interests (to
the extent possible) and affords respect for the Receiver Court’s
order while continuing to enforce Covil’s discovery obligations
under the Rules.
CONCLUSION
Although USF&G filed the Motion after the close of discovery,
the Motion qualifies as timely because the relief sought therein
concerns Covil’s ongoing obligation to supplement under Rule 26(e).
In light of the scope of Covil’s claims and breadth of the
Settlement Agreements, only the Zurich Settlement qualifies as
discoverable. However, given the independent judicial duty to
enforce the limitations of Rule 26(b)(1), the Court will order
Covil to disclose only the amount of the Zurich Settlement and any
provisions pertaining to apportionment of some or all of that
amount to the Finch Action. Although the setoff issue fully ripens
after a verdict establishing liability, the Court declines to delay
supplementation any further, particularly in light of the (non-

8 The Receiver Court asserted control over Covil’s assets (to
include Covil’s insurance policies) and invoked its authority to
supervise the Receiver’s liquidation of such assets. (See Docket
Entry 405-3 at 9 & n.1.
31
bifurcated) discovery plan. Lastly, neither the confidential
nature of the Zurich Agreement nor the Receiver Court’s order
approving of and sealing that document warrants non-disclosure
under the circumstances.
IT IS THEREFORE ORDERED that the Motion (Docket Entry 399) is
GRANTED IN PART, such that, on or before June 25, 2021, Covil must
serve a supplemental interrogatory response identifying payments
received in the Zurich Settlement and must produce to USF&G any and
all provisions of the Zurich Settlement which reveal the amount of
settlement funds due Covil, as well as any provisions of the Zurich
Settlement which concern any allocation of settlement funds to the
Finch Action (including any provisions that Covil contends support
allocation of any portion of such funds to matters other than the
Finch Action).
This the 17th day of June, 2021.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge

32

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10253774. Public record. Not legal advice.