Home Indem. Co. v. City of Marianna, 86-194

• Citation: 291 Ark. 610,727 S.W.2d 375
• Decision Date: 13 April 1987
• Docket Number: No. 86-194,86-194
• Parties: The HOME INDEMNITY COMPANY, Appellant, v. The CITY OF MARIANNA, Arkansas, et al, Appellee.
• Court: Supreme Court of Arkansas

Page 375

727 S.W.2d 375

291 Ark. 610

The HOME INDEMNITY COMPANY, Appellant, v. The CITY OF MARIANNA, Arkansas, et al, Appellee.

No. 86-194.

Supreme Court of Arkansas.

April 13, 1987.

Lovett Law Firm by Mel Sayes, Little Rock, for appellant.

Daggett, Van Dover, Donovan & Cahoon by Robert J. Donovan, Marianna, for appellee.

HAYS, Justice.

This appeal by The Home Indemnity Company is from a summary judgment granted to the City of Marianna ordering Home to defend the city under a policy of liability insurance issued by Home.

Marianna, its mayor and aldermen, were defendants in a pending federal suit brought by a group of Marianna black voters alleging violations of the Voting Rights Act of 1965 and asking that the Marianna election system be declared unlawful and any further implementation of the city's redistricting plan of 1982 be enjoined. The suit asked for court costs, necessary expenses of litigation, attorneys fees, and "such other relief as may be just and equitable."

Marianna called on Home and the Arkansas Municipal League, Administrator, Municipal Legal Defense Program, to defend it in the federal suit. When both Home and the League refused, a declaratory judgment action was filed by Marianna.

The trial court denied the city's motion for summary judgment against the League, but granted Marianna's motion for summary judgment against Home. Home and Marianna brought separate appeals. We recently sustained the summary judgment granted to the League, see City of Marianna v. Arkansas Municipal League, Administrator, Municipal Legal Defense Program, 291 Ark. 74, 722 S.W.2d 578 (1987), and by this opinion we affirm the summary judgment on behalf of Marianna against Home.

Home's policy--termed a public officials' errors and omissions policy--covers causes of action accruing between August 30, 1982 and August 30, 1985. However, prior acts occurring after August 30, 1979 are covered by endorsement. The policy obligates Home to pay damages and to defend suits for damages resulting from wrongful acts occurring within the period covered.

Home argues it was error to grant summary judgment because the suit in federal court was not a suit for damages. Home's policy states it will pay "all sums which the insured shall become legally obligated to pay as damages because of any WRONGFUL ACT which occurs during the policy period and arises out of the discharge of duties by an insured on behalf of a public entity." The policy also states Home has "the right and duty to defend any suit against the insured seeking damages for claims to which this insurance applies, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient...."

Home relies heavily on the fact that the federal plaintiffs seek no damages, merely injunctive and declaratory relief, along with costs, expenses and attorney's fees. Home cites a variety of sources in support of the argument that attorneys fees and court costs are not ordinarily viewed as damages. We readily agree that such expenses are not normally regarded as damages. But we do not agree that issues basic to insurance coverage can properly turn on what "ordinarily" pertains. Certainly the coverage itself was never intended to stand or fall on terms which are subject to differing interpretation. Moreover, we find some elasticity in the word "damages." In Nat Harrison Associates, Inc. v. Gulf States Utilities Co., 491 F.2d 578 (5th Cir.1974) it was said, "It has long been the general rule that attorney's fees may be recovered as an item of damages (emphasis supplied) where specifically authorized by statute or contract. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967)." And see Garrott v. Kendal, 212 Ark. 210, 205 S.W.2d 192 (1947); Stocker Hinge Mfg. Co. v. Darnell Industries, Inc., 99 Ill.App.3d 340, 54 Ill.Dec. 685, 425 N.E.2d 550 (1981); Flintkote Co. v. Presley of Northern California, 201 Cal.Rptr. 262, 154 C.A.3d 458 (1984); Genis v. Krasne, 47 Cal.2d 241, 302 P.2d 289 (1956); O'Sullivan v. Dist. Ct. of Fergus County, 127 Mont. 32, 256 P.2d 1076 (1953); Manko v. City of Buffalo, 187 Misc. 471, 67 N.Y.S.2d 101 (1946); Swaner v. Union Mortgage Co., 105 P.2d 342, 99 Utah 298 (1940); Cornelison v. U.S. Bldg. & Loan Assn., 292 P. 243, 50 Idaho 1 (1930); Col. Dev. Co. v. Creer, 80 P.2d 914, 96 Utah 1 (1938); Employers' Indemnity Corp. v. Southwest National Bank, 299 S.W. 676 (Tex.Civ.App.1927). Furthermore, Home could easily have eliminated the uncertainty by defining "damages" in its policy. It chose not to do so and we are unwilling to deny coverage on that equivocal ground. ¹

Turning elsewhere for guidance, we find cases on both sides of the issue. In Aetna Casualty and Surety v. Hanna, 224 F.2d 499 (5th Cir.1955), the District Court, applying Florida law, held there was no liability by Aetna to its insureds, the Hannas, under a comprehensive personal liability policy requiring Aetna "to pay damages." The Hannas were sued by adjoining landowners to remove boulders and fill materials and to erect a retaining wall on low-lying property or be subject to an assessment of damages. Aetna refused to defend and after the litigation was concluded with no assessment of damages, the Hannas sued Aetna. The court held there was no coverage under the policy against mandatory injunctive orders and to so construe the unambiguous language of the policy would do violence to its plain provisions.

In Ladd Construction Co. v. Insurance Co. of North America, 73 Ill.App.3d 43, 73 Ill.Dec. 305, 391 N.E.2d 568 (1979), INA provided coverage to Ladd under a multiple liability policy obligating INA to pay "all sums which the insured shall become legally liable to pay as damages" and to defend such claims. Burlington Railroad sued Ladd for a mandatory injunction to remove slag from its right-of-way and "for such other relief as equity and conscience require." Citing Hanna and rejecting Doyle v. Allstate, infra, the Illinois Court agreed with INA that the policy covered only payments to third persons having a legal claim for damages.

In Desrochers v. New York Casualty Co., 99 N.H. 129, 106 A.2d 196 (1954), it was held that the cost of complying with a suit for injunctive relief was not to be considered as damages within the meaning of a comprehensive liability policy.

In Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 154 N.Y.S.2d 10, 136 N.E.2d 484 (1956) and United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 336 N.W.2d 838 (1983), a different result was reached. In the latter case, Aviex was notified by the Michigan Department of Natural Resources that Aviex would be required to investigate the extent of toxic contamination to underground water resulting from a fire at Aviex's chemical manufacturing facility. Aviex was insured by Travelers under a policy which obligated Travelers to pay on behalf of Aviex all sums which the insured shall become obligated to pay "... as damages because of ... property damage." Travelers denied coverage as to any contamination of water because no claim for damages had been presented.

Aviex spent approximately $80,000 in testing expenses and in obtaining estimates of the costs of cleanup. In Aviex's declaratory suit against Travelers the trial court held Travelers was obligated to defend any claim or action and to pay for any damages, including reimbursement of the testing expenses incurred by Aviex. The appeals court affirmed the trial court on Travelers appeal. The opinion carefully examines Hanna, Ladd and Desrochers, supra, and rejects them as interpreting "damages" too narrowly:

If the state were to sue in court to recover in traditional "damages", including the state's costs incurred in cleaning up the contamination, for the injury to the groundwater, defendant's obligation to defend against the lawsuit and to pay damages would be clear. It is merely fortuitous from the standpoint of either plaintiff or defendant that the state has chosen to have plaintiff remedy the contamination problem, rather than choosing to incur the costs of clean-up itself and then suing plaintiff to recover those costs. The damage to the natural resources is simply measured in the cost to restore the water to its original state.

In Doyle v. Allstate, supra, Allstate issued a comprehensive personal liability policy to Doyle by which Allstate undertook to pay all sums Doyle might become legally obligated to pay as damages because of bodily injury, sickness or disease and to defend any suit seeking damages "on account thereof, even if such suit is groundless, false or fraudulent." While coverage was in effect, suit in equity for an injunction was brought against Doyle by neighboring landowners named Markle, asking that Doyle be permanently restrained from operating a dog kennel on his property and seeking "such other and further relief as to the court may seem just and equitable besides the costs and disbursements of this action."

Allstate refused to defend and Doyle successfully defended at his own expense and then sued Allstate. Doyle's motion for summary judgment was denied by the trial court and affirmed on appeal to the Appellate Division of the Supreme Court. Before the Court of Appeals those orders were reversed. The opinion notes that if the Markles had established their right to equitable relief, damages could have been awarded to them which Doyle would have been legally obligated to pay.

The policy does not draw any distinction between damages awarded by a court of law and those awarded by a court of equity. [Doyle] was justified in expecting that if suit was instituted against him wherein he might be legally obligated to pay a sum of money as damages because of his operating a dog kennel, the insurer would defend. It is of no moment that such a judgment was not actually obtained against [Doyle]. [Allstate]...