United Specialty Insurance Company v. LIC Contracting, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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UNITED SPECIALTY INSURANCE :

COMPANY, :

:

Plaintiff, : ORDER

: 17 Civ. 5736 (EK) (VMS)

-against- :

:

LIC CONTRACTING, INC., SEUNGHO KIM, :

JEEWHA KIM, 211-12 NORTHERN :

BOULEVARD CORP., and SAI GROCERY, :

INC., :

: :

Defendants. :

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Vera M. Scanlon, United States Magistrate Judge:

Before the Court are Plaintiff United Specialty Insurance Company’s (“Plaintiff” or

“United Specialty”) and Defendants LIC Contracting, Inc., Seungho Kim and Jeewha Kim’s

(collectively, the “LIC Defendants”) motions to seal certain documents to be filed with the

briefing related to the LIC Defendants’ proposed motion for summary judgment. See ECF Nos.

123, 124, 125, 126. Defendants 211-12 Northern Boulevard Corp. and SAI Grocery, Inc.

(collectively, the “211 Defendants”) oppose the motions to seal. ECF No. 127. For the

following reasons, United Specialty’s motion to seal and the LIC Defendants’ motion to seal are

granted in part and denied in part.

I. Background

Plaintiff’s action is for declaratory judgment pursuant to 28 U.S.C. § 2201 against the

LIC Defendants in connection with the LIC Defendants’ insurance coverage claims under a

Plaintiff-issued policy relating to an incident that gave rise to state court litigation (the

“Underlying Action”). See ECF No. 1 at 1-2. The LIC Defendants demanded that their

nonparty primary insurance carrier defend and indemnify them in the Underlying Action. See id.

at 2. In the Underlying Action, summary judgment was entered against the LIC Defendants in

connection with an excavation project they conducted that allegedly caused damage to a building

adjacent to the excavation site. See id. Plaintiff alleges that it is entitled to a declaration that it

has no obligation to defend or indemnify the LIC Defendants with respect to the Underlying

Action under the terms of the Plaintiff-issued policy which provide for Plaintiff to defend and

indemnify the LIC Defendants when the applicable limits of controlling underlying insurance

have been exhausted. See id. at 2-3. Plaintiff’s policy includes an exclusion related to injury or

damage caused by subsidence, which Plaintiff alleges excludes coverage for the excavation

damage in the Underlying Action. See id. at 6-8.

Discovery was certified as complete based on the representation of the parties in ECF No.

113. See Order dated 3/9/2021. United Specialty and the LIC Defendants subsequently

submitted motions for pre-motion conferences for proposed summary judgment motion practice.

See ECF Nos. 115, 116. The LIC Defendants’ proposed motion practice includes equitable

arguments of waiver and estoppel against Plaintiff’s disclaimer of coverage, on the theory that

Plaintiff allegedly “sabotaged” any chance of a reasonable settlement during mediation in the

Underlying Action. See ECF No. 116 at 2. Plaintiff intends to oppose these equitable

arguments, claiming they are “devoid of merit.” See ECF No. 117 at 2. The requests for a pre-

motion conference were granted, and a pre-motion conference was held. See Dkt. Entry

6/17/2021; ECF No. 121.

In connection with the LIC Defendants’ proposed motion for summary judgment and

Plaintiff’s proposed opposition, the parties seek to file under seal (1) documents in Plaintiff’s

claims file generated before January 4, 2018; and (2) those portions of the deposition transcripts

of Plaintiff’s agents Keri Yaeger and Virginia Balogh pertaining to Plaintiff’s claims-handling

activities with the Underlying Action prior to January 4, 2018. See ECF No. 123 at 2; ECF No.

124 at 2; ECF No. 125 at 2; ECF No. 126 at 2. They argue that these claims-file documents are

subject to the attorney-client privilege; that this privilege was not waived although documents

were shared between United Specialty and the LIC Defendants; and that prior to United

Specialty’s disclaimer of coverage on January 4, 2018, United Specialty and the LIC Defendants

shared a common legal interest and were permitted to share files while maintaining the privilege

under a joint-defense theory. See ECF No. 123 at 2-3; ECF No. 124 at 2-3; ECF No. 125 at 2-3;

ECF No. 126 at 2-3. They also argue that the 211 Defendants should not be allowed access to

these documents because the 211 Defendants are the plaintiffs in the Underlying Action whose

interests are adverse to those of the LIC Defendants such that the production of these documents

would be extremely prejudicial to the LIC Defendants in the Underlying Action. See ECF No.

123 at 3; ECF No. 124 at 3; ECF No. 125 at 3; ECF No. 126 at 3. The 211 Defendants opposed

the motions to seal, arguing that United Specialty and the LIC Defendants have failed to

establish that these documents are privileged or protected by the common-interest doctrine, and

that the 211 Defendants should have access to the documents and be allowed to fully participate

in discovery. See ECF No. 127 at 2-3.

II. Legal Standards

The Second Circuit utilizes a three-step process for determining whether documents

should be sealed in light of the common law right of access. “Before any such common law

right can attach . . . a court must first conclude that the documents at issue are indeed judicial

documents.” Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 119 (2d Cir. 2006) (internal

quotations omitted). To constitute a judicial document, “the item filed must be relevant to the

performance of the judicial function and useful in the judicial process.” United States v.

Amodeo (“Amodeo I”), 44 F.3d 141, 145 (2d Cir. 1995).

Second, after determining that the documents are judicial documents and that the

“common law presumption of access attaches,” the court must “determine the weight of that

presumption.” Lugosch, 435 F.3d at 119. According to the Second Circuit, “the weight to be

given the presumption of access must be governed by the role of the material at issue in the

exercise of Article III judicial power and the resultant value of such information to those

monitoring the federal courts. Generally, the information will fall somewhere on a continuum

from matters that directly affect an adjudication to matters that come within a court’s purview

solely to insure their irrelevance.” United States v. Amodeo (“Amodeo II”), 71 F.3d 1044, 1049

(2d Cir. 1995). When a document plays a role in a court’s adjudication of litigants’ substantive

rights—a function that is “at the heart of Article III”—the presumption is strong, but “[a]s one

moves along the continuum, the weight of the presumption declines.” Id. When “documents are

usually filed with the court and are generally available, the weight of the presumption is stronger

than where filing with the court is unusual or is generally under seal.” Id. at 1050.

Third, the court must balance any “competing considerations” against the weight of the

presumption of access. Lugosch, 435 F.3d at 120 (internal quotations & citation omitted).

“Such countervailing factors include but are not limited to ‘the danger of impairing law

enforcement or judicial efficiency’ and ‘the privacy interests of those resisting disclosure.’” Id.

(quoting Amodeo II, 71 F.3d at 1050); accord Bernstein v. Bernstein Litowitz Berger &

Grossmann LLP, 814 F.3d 132, 143 (2d Cir. 2016). When weighing privacy interests, courts

should consider “the degree to which the subject matter is traditionally considered private rather

than public.” Amodeo II, 71 F.3d at 1051. Courts should also assess the “nature and degree of

injury,” paying heed to “the sensitivity of the information and the subject” but also to “how the

person seeking access intends to use the information.” Id. (explaining that “[c]ommercial

competitors seeking an advantage over rivals need not be indulged in the name of monitoring the

courts”).

The First Amendment right of access stems from the qualified right of the public and the

press “to attend judicial proceedings and to access certain judicial documents.” Lugosch, 435

F.3d at 120 (quoting Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 91 (2d Cir. 2004)). Once a

court concludes that there is a qualified First Amendment right of access to the judicial

documents at issue, it may only seal the documents “if specific, on the record findings are made

demonstrating the closure is essential to preserve higher values and is narrowly tailored to serve

that interest.” Id. (quoting In re N.Y. Times Co., 828 F.2d 110, 116 (2d Cir. 1987)). “Broad and

general findings by the trial court . . . are not sufficient to justify closure.” Id. (quoting In re

N.Y. Times Co., 828 F.2d at 116). Examples of “higher values” may include law-enforcement

interests, the privacy of innocent third parties, Amodeo II, 71 F.3d at 1050, and the attorney-

client privilege, Lugosch, 435 F.3d at 125.

In the pending motions, the documents that the parties seek to file wholly under seal are

documents “submitted to the court as supporting material in connection with [the LIC

Defendants’] motion for summary judgment.” Lugosch, 435 F.3d at 123. “[D]ocuments

submitted to a court for its consideration in a summary judgment motion are—as a matter of

law—judicial documents to which a strong presumption of access attaches, under both the

common law and the First Amendment.” Id. at 121. The Second Circuit has instructed that the

weight of the presumption of public access given to summary judgment filings “is of the highest:

‘documents used by parties moving for, or opposing, summary judgment should not remain

under seal absent the most compelling reasons.’” Id. at 123 (quoting Joy v. North, 692 F.2d 880,

893 (2d Cir. 1982)).

“It is undeniable that the public has a significant interest in preserving the confidentiality

of attorney-client communications.” Diversified Grp., Inc. v. Daugerdas, 217 F.R.D. 152, 160

(S.D.N.Y. 2003). “Indeed, this is precisely the kind of countervailing concern that is capable of

overriding the general preference for public access to judicial records.” Siedle v. Putnam Invs.,

147 F.3d 7, 11 (1st Cir. 1998) (reversing a district court’s decision to unseal privileged

documents at the request of a newspaper); see Crystal Grower’s Corp. v. Dobbins, 616 F.2d 458,

462 (10th Cir. 1980) (concluding that the public’s interest in preserving the attorney-client

privilege outweighs the public’s more general interest in access to court documents);

Dombrowski v. Bell Atl. Corp., 128 F. Supp. 2d 216, 219 (E.D. Pa. 2000) (finding that the

failure to maintain privileged materials under seal would cause “a clearly defined and serious

injury not only to the parties seeking closure but also to the public interest which the attorney-

client privilege is designed to serve”) (internal quotations & citation omitted)).

Under New York law, the common-interest doctrine allows attorney-client and other

privileged communications to be shared with a third party to further a common legal interest

without waiving privilege. See Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27

N.Y.3d 616, 628 (2016). Courts within the Second Circuit recognize the common-interest rule.

See Kingsway Fin. Servs., Inc. v. Pricewaterhouse-Coopers LLP, No. 03 Civ. 5560 (RMB)

(HBP), 2008 WL 4452134, at *7 (S.D.N.Y. Oct. 2, 2008) (collecting cases). Where a common

interest is found between an insurer and an insured, but the insurer ultimately disclaims

coverage, courts have applied the common-interest doctrine to protect communications shared

prior to the time the insurer denied coverage to the insured. See Bovis Lend Lease, LMB, Inc. v.

Seasons Contracting Corp., No. 00 Civ. 9212 (DF), 2002 WL 31729693, at *15 (S.D.N.Y. Dec.

5, 2002); see also Kingsway, 2008 WL 4452134, at *8 (“The fact that the parties are currently

adverse in a related action does not alter the fact that Dore and Great American shared a common

interest at the time the communications were made . . . . The fact that the parties’ interests have

diverged . . . does not necessarily negate the applicability of the common interest rule.”) (internal

citations & quotations omitted)).

Courts have also found that insurers do not have to produce their communications with

the insured’s defense counsel and claims-file documents to the underlying plaintiff; this is

because the interests of the insured and the underlying plaintiff are adverse to each other in the

underlying actions. See Tudor Ins. Co. v. McKenna Assocs., No. 01 Civ. 115 (DAB) (JCF),

2003 WL 21488058, at *3 (S.D.N.Y. June 25, 2003); U.S. Underwriters Ins. Co. v. Ziering, No.

06 Civ. 1130 (JFB) (WDW), 2008 WL 2230688, at *4 (E.D.N.Y. May 28, 2008); Tudor Ins. Co.

v. Golovunin, No. 07 Civ. 4792 (KAM) (ALC), 2010 WL 11627209, at *2 (E.D.N.Y. Apr. 15,

2010).

III. Analysis

a. United Specialty’s Motion To Seal

As to United Specialty’s request to file under seal “any documents in its claims file

generated before January 4, 2018,” see ECF No. 123 at 2; ECF No. 124 at 2, the date on which

United Specialty denied coverage to the LIC Defendants, the Court denies this broad request.

Other than three pages, United Specialty has not attached the specific documents it seeks to file

under seal for the Court’s review, so this Court cannot evaluate any claim of privilege. This

Court previously observed that not all of the documents that are part of the claims file are

privileged. See ECF No. 122, June 19, 2019 Tr. at 35:10-18. Upon review of the three pages

attached to United Specialty’s motion to seal, United-001353-1354, United-001410, the Court

finds that United-001353-54 are privileged and contain attorney-work product; they may be filed

under seal. United-001410, however, is a document generated after January 4, 2018, and without

any further elaboration as to why this document is privileged, the request to file it under seal is

denied.

b. The LIC Defendants’ Motion To Seal

i. Waiver

As to the LIC Defendants’ request to file under seal certain pages of the claims file that

are attached to their motion to seal, the Court denies the motion with respect to United-000024-

51, United-000055, United-000058-63, United-000067-72, United-000075-85, United-000090,

United-000093, United-000096, United-000099-101, United-000104, United-000108, United-

000112, United-000117, United-000122-123, United-000675, and United-000728-729 as these

documents have already been produced to the 211 Defendants. See ECF No. 83 at 2. The LIC

Defendants do not dispute that the disclosure occurred. To the extent the LIC Defendants now

purport to claim privilege over such documents, any privilege has been waived.

As to the remainder of the documents attached to the LIC Defendants’ motion to seal,

United-000016-23, United-000052-54, United-000056-57, United-000064-66, United-000073-

74, United-000086-89, United-000091-92, United-000094-95, United-000097-98, United-

0000102-103, United-000105-107, United-000109-111, United-000113-116, United-000118-

121, United-000308-329, United-000587-590, United-000595-601, United-000617-661, United-

000663-674, United-000676-727, United-000730-755, United-000777-782, United-000804-812,

and United-000820-821, the Court finds that United Specialty and the LIC Defendants shared

these communications pursuant to a common legal interest in litigating and mediating the

Underlying Action prior to the time that Plaintiff disclaimed coverage. See Bovis Lend Lease,

LMB, 2002 WL 31729693, at *15; see also Kingsway, 2008 WL 4452134, at *8. As such, any

applicable privilege over these documents has not been waived.

At the outset, the Court notes that United Specialty’s claims file was not produced to the

211 Defendants during discovery, and despite multiple opportunities to raise the issue with the

Court, the 211 Defendants never moved to compel the production of these documents. In fact,

the 211 Defendants represented to the Court in joint status letters that discovery was complete

and that all outstanding issues were resolved. See, e.g., ECF No. 80 at 1 (“At this juncture there

are no discovery disputes among the parties other than the priority of depositions discussed more

fully below. The parties have completed their exchange of voluminous written discovery and

documents.”); ECF No. 113 at 1 (“Expert discovery has been completed in this action and any

issues between the parties have been resolved.”); Order dated 3/9/2021 (certifying discovery is

complete); see also ECF No. 83 at 1 (“At the October 17, 2018 conference before Your Honor,

counsel for the 211 Defendants, Chris Vatter, raised concerns about the sealed documents, and

indicated that it would be making specific objections and demands, requesting further

information as to why the documents contained under entry # 51 were privileged. 211

Defendants’ request however never transpired.”). The request for these documents to now be

produced to the 211 Defendants and the 211 Defendants’ challenge to their privilege designation

as part of discovery, are untimely and waived.

ii. Documents

Nonetheless, the Court reviews the documents to determine whether they are privileged

so as to justify sealing from the general public. The Court has reviewed the documents

submitted by the LIC Defendants from United Specialty’s claims file that have not been

previously produced to the 211 Defendants and finds the majority of the previously unproduced

claims file documents include privileged and attorney-work product regarding the litigation and

mediation of the Underlying Action. See ECF No. 126-1. The following documents may be

filed under seal because they contain attorney-client communications or references thereto,

communications and notes regarding litigation strategy, and attorney work product, such as

confidential mediation statements and calculations relating to settlement value:

United-000016-23 United-000642

United-000052-54 United-000644

United-000056-57 United-000647-648

United-000064-66 United-000651-652

United-000086-88 United-000657

United-000091-92 United-000661

United-000094-95 United-000663

United-000097-98 United-000665-666

United-000102-103 United-000669-670

United-000105-106 United-000676-679

United-000109-111 United-000681-686

United-000113-115 United-000689-706

United-000118-120 United-000709

United-000308-311 United-000711-712

United-000313 United-000714

United-000318-321 United-000716

United-000324-329 United-000718-722

United-000587 United-000724

United-000595 United-000730-731

United-000619 United-000733

United-000621-622 United-000739-740

United-000624 United-000742

United-000629 United-000744-751.

United-000639-640

The Court denies the motion to seal with respect to the following documents for the

following reasons:

Documents Reason for Denying Request to Seal

United-000073-74 All privileged information is already redacted

on the documents.

United-000089, -107, -116, -121, -314, -322- Not privileged because these documents do

323, -588, -596, -598, -600-601, -618, -620, - not contain any substantive content.

623, -625, -641, -643, -649, -653, -664, -667,

-671, -680, -710, -715, -723, -726-727, -732, -

735-738, -741

United-000312, -315-317, -645-646, -672, - Not privileged because documents are cover

674, -752-755, -777-782, -804-812, -820-821 or non-substantive transmission emails, or the

attachments are already in possession of the

211 Defendants or are public court

documents.

United-000589-590, -597, -599, -617, -626- Not privileged because documents are non-

628, -630-638, -650, -654-656, -658-660, - substantive emails regarding logistics or

668, -673, -687-688, -707-708, -713, -717, - requesting status updates or copies of

725, -734, -743 documents.

iii. Deposition Transcripts

As to the portions of the deposition transcripts attached to LIC Defendants’ motion to

seal, the Court finds that significant portions of these transcripts may be filed under seal. This

Court previously ordered that the 211 Defendants could not be present for the portions of the

deposition that relate to issues of alleged bad faith between United Specialty and the LIC

Defendants. See ECF No. 122, June 19, 2019 Tr. at 50:3-51:3. The Court has reviewed these

portions of the deposition transcripts and finds that most of the deposition questioning relates to

privileged documents and topics such as litigation and mediation strategy, and disclosure of the

contents to the 211 Defendants or the public would unfairly prejudice the LIC Defendants in the

Underlying Action because that action is still ongoing. See McKenna Assocs., 2003 WL

21488058, at *3 (holding that an insurer in a coverage action did not have to disclose its

communications with the insured’s defense counsel to the underlying plaintiff because the

interests of the insured and the underlying plaintiff were adverse to each other in the underlying

tort action); U.S. Underwriters Ins. Co., 2008 WL 2230688, at *4 (in declaratory judgment

action, finding that the underlying plaintiff, as adversary in the underlying action, does not have

a right to discovery of privileged documents between the insurer and the insured’s retained

defense counsel); Golovunin, 2010 WL 11627209, at *2 (same). United Specialty and the LIC

Defendants should utilize copies of the deposition transcripts with redactions so that the

following non-privileged questioning—which relates to terminology, identifying people, or the

content of documents that were either already produced to the 211 Defendants or documents this

Court found should not be filed under seal, supra—are in the public access. The following

portions of the deposition transcripts may not be redacted: Balogh Dep. Tr. 62:6-68:4, 69:5-17,

84:3-89:3, 93:2-16, 98:19-99:22, 109:11-110:19, 124:8-24, 127:5-132:2; Yaeger Dep. Tr. 89:6-

97:7, 105:7-116:10, 121:4-122:3, 122:17-124:10, 129:8-133:11, 136:23-137:23, 146:12-149:24,

157:15-158:15, 168:7-13, 168:19-24, 169:5-6, 182:23-184:23, 185:18-186:4, and 190:16-197:10.

IV. Conclusion

In summary, the motions to seal at ECF Nos. 123, 124, 125, and 126 are granted in part

and denied in part. The parties may file under seal certain of the documents and portions of the

deposition transcripts as described above for purposes of the dispositive motion practice. The

Court takes no position at this time as to how the documents might be used at trial should a trial

be held.

Dated: Brooklyn, New York

January 6, 2022

Vera M. Scanlon .

VERA M. SCANLON

United States Magistrate Judge