Town of South Whitley, Whitley County, Ind. v. Cincinnati Ins. Co., 89-3623

Citation921 F.2d 104
Decision Date26 December 1990
Docket NumberNo. 89-3623,89-3623
Parties54 Fair Empl.Prac.Cas. 1279, 55 Empl. Prac. Dec. P 40,463 TOWN OF SOUTH WHITLEY, WHITLEY COUNTY, INDIANA, Plaintiff-Appellant, v. CINCINNATI INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

J. Frank Kimbrough, Wilks & Kimbrough, Fort Wayne, Ind., for plaintiff-appellant.

Thomas C. Ewing, James J. Shea, Hunt, Suedhoff, Borror & Eilbacher, Fort Wayne, Ind., for defendant-appellee.

Before POSNER, MANION and KANNE, Circuit Judges.

MANION, Circuit Judge.

The plaintiff, Town of South Whitley (South Whitley), sought declaratory relief in a diversity action against the defendant Cincinnati Insurance Company (CIC). South Whitley asked that CIC be required to indemnify South Whitley under the terms of an insurance contract for any judgment and costs imposed by a court in the event South Whitley was held liable in a pending age discrimination suit filed against it. The district court granted CIC's motion for summary judgment finding that the insurance contract denied coverage to South Whitley for actions alleging South Whitley's intentional discriminatory conduct. Town of South Whitley v. Cincinnati Insurance Co., 724 F.Supp. 599 (N.D.Ind.1989). We affirm the judgment of the district court.

I.

The parties do not dispute the district court's findings of facts. The plaintiff, the Town of South Whitley, is a governmental entity created under the laws of Indiana. South Whitley is governed by a Town Board of Trustees consisting of three elected officials, one of whom is chosen by the Board to function as the Town executive. The Board is the highest municipal authority in the Town, overseeing all the Town business including hiring and firing Town employees. The defendant, Cincinnati Insurance Company, having been incorporated under the laws of Ohio and having its principal place of business in Ohio, is a citizen of the state of Ohio.

Effective as of January 1, 1985, CIC issued to South Whitley a three-year "Commercial Umbrella Liability Policy" which provided different types of excess casualty coverage, under certain specified conditions, for its governmental operations. Under the policy, CIC agreed to cover South Whitley for damages relating to "personal injury, property damage or advertising liability" resulting from "unintentional occurrences." Exclusions written into the insurance contract include CIC's refusal to cover the costs or damages arising out of lawsuits alleging South Whitley's deliberate discriminatory conduct. 1

In May 1986, South Whitley began an active search to hire a deputy town marshal. One applicant was Darol Eldridge, a part-time deputy marshal with South Whitley and a retired police officer and a 25-year veteran of the Fort Wayne, Indiana police department. After interviewing Eldridge and other applicants, South Whitley's three-person Town Board of Trustees decided not to hire Eldridge and instead selected a younger and allegedly less-qualified person for the position.

Eldridge filed a civil action in the United States District Court and named South Whitley, South Whitley's Marshal, and the three members of South Whitley's Board of Trustees as defendants. Eldridge, who was 54, claimed that he was the victim of intentional age-based discrimination, violative of his rights to due process and equal protection, and also violative of the Indiana Age Discrimination in Employment Act. South Whitley made a demand upon CIC pursuant to the policy to provide a defense and indemnification in the case brought by Eldridge. CIC refused. South Whitley filed a declaratory judgment complaint against CIC to compel coverage for the suit under the insurance policy. Later, after a brief discovery period, the parties cross-filed for summary judgment on the coverage question. 2

The district court granted CIC's motion for summary judgment, concluding that the insurance contract did not provide South Whitley coverage for Eldridge's legal action. In approaching this issue, the district court examined two Indiana Code sections relating to the legal substance of local government. Indiana Code Section 36-5-2-2 states:

The board of trustees elected under IC 3-10-6 or IC 3-10-7 is the town legislative body. The president of the board of trustees selected under section 7 of this chapter is the town executive.

In addition, Indiana Code Sec. 36-5-2-9 provides that:

The legislative body may:

(1) adopt ordinances and resolutions for the performance of functions of the town;

(2) purchase, hold, and convey any interest in property, for the use of the town; and

(3) adopt and use a common seal.

The district court concluded from the foregoing: "[u]nder this statutory framework, the Town Board possesses all of the Town of South Whitley's legislative and executive powers. The Town of South Whitley can only act or make executive decisions through its Town Board. Therefore, the action of the Board in deciding not to hire Eldridge was the action of the Town of South Whitley.... Accordingly, Exclusion (h)(2) precludes coverage under CIC's umbrella liability policy issued to the Town of South Whitley." 724 F.Supp. at 604-605. South Whitley appeals the district court's determination that South Whitley and the Town Board are the same entity under Indiana law and for purposes of the insurance policy.

II.

Our standard for evaluating the grant of a summary judgment motion is well established. "In examining the district court's grant of summary judgment, our duty is to review de novo the record and the controlling law." PPG Indus. v. Russell, 887 F.2d 820, 823 (7th Cir.1989). Typically, our task is to "decide whether the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to the judgment as a matter of law." Wolf v. Larson, 897 F.2d 1409, 1411 (7th Cir.1990). The parties have no factual dispute; the only question presented by the parties is a legal one.

South Whitley claims coverage because Exclusion (h)(2) denies coverage under the policy "to any liability for Personal Injury arising out of discrimination ... committed by or at your direction; ...". Since "your" is defined in the policy to be the "named insured" which is the Town of South Whitley, the Town insists it is covered because the allegedly discriminatory conduct was the activity of the Town Board of Trustees and not that of the Town of South Whitley per se.

CIC claims that it is impossible to differentiate between acts of the Town of South Whitley and acts of the Town Board. As the legal repository of all the legislative and executive powers of the Town of South Whitley, CIC insists the Town Board is the exclusive mechanism by which South Whitley can do anything.

This appeal turns on the narrow question of whether a town board acts as a town and whether its activities are imputable to the town. The Indiana statutes relied upon by the district court establish a "town" as a legal entity intended to regulate local public affairs. We see no basis under these statutes to separate the existence of a "town" from its organizational structure and its activities. In our effort to determine the legal meaning of "town" under Indiana law within the context of a contract for insurance, we are guided by Aetna Life Ins. Co. v. Doerr, 115 N.E. 700, 702 (Ind.1917). Doerr holds that in construing a policy of insurance, "every word ... should, when possible, have assigned to it some meaning...." See also Gulf Insurance Co. v. Tilley, 280 F.Supp. 60, 64 (N.D.Ind.1967). Clearly, Exclusion (h)(2) conceives of South Whitley exercising decisionmaking authority and implementing policy. Exclusion (h)(2) denies...

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