Andover Newton Theological School, Inc. v. Continental Cas. Co.

• Decision Date: 08 March 1991
• Docket Number: Nos. 89-1945,89-1946,s. 89-1945
• Citation: 930 F.2d 89
• Parties: 55 Fair Empl.Prac.Cas. 977, 56 Empl. Prac. Dec. P 40,705, 67 Ed. Law Rep. 56 ANDOVER NEWTON THEOLOGICAL SCHOOL, INC., Plaintiff, Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant, Appellee. ANDOVER NEWTON THEOLOGICAL SCHOOL, INC., Plaintiff, Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 89

930 F.2d 89

55 Fair Empl.Prac.Cas. 977,

56 Empl. Prac. Dec. P 40,705, 67 Ed. Law Rep. 56

ANDOVER NEWTON THEOLOGICAL SCHOOL, INC., Plaintiff, Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant, Appellee.

ANDOVER NEWTON THEOLOGICAL SCHOOL, INC., Plaintiff, Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant, Appellant.

Nos. 89-1945, 89-1946.

United States Court of Appeals First Circuit.

Heard March 8, 1991.

Decided April 10, 1991.

Leonard F. Clarkin with whom Harry C. Beach, Wood, Clarkin & Sawyer, P.C., Susan A. Jackson and Haussermann, Davison & Shattuck were on brief, Boston, Mass., for Andover Newton Theological School, Inc.

Patricia A. Gotschalk with whom Timothy C. Russell, S. Elizabeth Doran, Drinker, Biddle & Reath, Washington, D.C., Joan M. Griffin and Casner & Edwards were on brief, Boston, Mass., for Continental Cas. Co.

Before CAMPBELL, Chief Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

COFFIN, Senior Circuit Judge.

In 1987, a jury found that Andover Newton Theological School, Inc. (Andover) both violated the Age Discrimination in Employment Act (ADEA), 29 U.S.C. Secs. 621-634, and breached an employment contract when it terminated a tenured professor. This court affirmed the jury's verdict in Linn v. Andover Newton Theological School, Inc., 874 F.2d 1 (1st Cir.1989). Andover thereafter made a claim on its insurance carrier, Continental Casualty Co. (Continental). When Continental refused to pay the claim, Andover filed suit, alleging breach of insurance contract and unfair and deceptive trade practices. The district court held that Continental was not obligated under the policy to reimburse Andover for damages arising from the Linn case because Massachusetts law precluded an insurance company from insuring a willful violation of the ADEA. See Mass.Gen.L. ch. 175, Sec. 47, Sixth (b). The court also held that the policy language unambiguously excluded payments for amounts due under the terms of a contractual obligation. The court held, however, that the policy permitted recovery of costs associated with the defense of the Linn case, and awarded $102,748.85 for that loss.

On appeal, Andover challenges both the district court's determination that a willful violation of the ADEA fell within the public policy proscriptions of Mass.Gen.L. ch. 175, Sec. 47, Sixth (b), and the court's interpretation of the policy exclusion for contractual obligations. Continental, in turn, appeals the award of litigation costs.

After hearing oral argument, this court concluded that a critical issue in this case turned on a question of Massachusetts law on which we could find no controlling precedent. We therefore certified a single question to the Massachusetts Supreme Judicial Court in accordance with Mass.S.J.C. Rule 1:03:

Does a finding of willfulness under the Age Discrimination in Employment Act (ADEA), if based on a finding of "reckless disregard as to whether [defendant's] conduct is prohibited by federal law," constitute "deliberate or intentional ... wrongdoing" such as to preclude indemnification by an insurer under the public policy of Massachusetts as codified at Mass.Gen.L. ch. 175, Sec. 47 Sixth (b)?

Andover Newton Theological School, Inc. v. Continental Casualty Co., 901 F.2d 1, 3 (1st Cir.1990). The SJC answered that it did not. Andover Newton Theological School, Inc. v. Continental Casualty Co., 409 Mass. 350, 566 N.E.2d 1117 (1991). With that answer in hand, we now address the parties' contentions on appeal. Concluding that the district court erred, we reverse and remand the case for further proceedings consistent with this opinion.

I. The ADEA Claim

Andover was insured by Continental for losses arising out of wrongful acts. The scope of the insured loss specifically was limited by policy language stating that:

such subject of loss shall not include ... matters which shall be deemed uninsurable under the law pursuant to which this policy shall be construed.

In the underlying action, Andover was found by a jury to have violated the ADEA by discharging Dr. Edmund Linn from his tenured faculty position when he was 62 years of age. The jury also found Andover's conduct to have been willful under the ADEA. The jury's finding of willfulness was based on an instruction that "[a] defendant acts willfully if it knows its conduct was prohibited by federal law or if it acts in reckless disregard as to whether its conduct is prohibited by federal law. 'Prohibited' being age discrimination in this case."

The district court granted summary judgment to Continental, holding that the United States Supreme Court had defined "willful" under the ADEA to mean "voluntary," "deliberate" or "intentional" in McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677, 1681, 100 L.Ed.2d 115 (1988). The court then concluded that "willful" conduct was within the meaning of the Massachusetts provision precluding insurance coverage for "deliberate or intentional ... wrongdoing."

The district court's reliance on this language from McLaughlin was misplaced. First, the controlling definition by the Supreme Court of the word "willful" in the liquidated damages provision of the ADEA, 29 U.S.C. Sec. 626(b), appears in Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 128, 105 S.Ct. 613, 625, 83 L.Ed.2d 523 (1985), where the Court held that "a violation is 'willful' if 'the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the ADEA.' " Second, the language from McLaughlin quoted by the district court was preliminary discussion; the McLaughlin Court ultimately adopted the Thurston standard. Finally, regardless of the standard enunciated by the Supreme Court, what is significant here is the standard actually applied by the jury in reaching its finding of willfulness--knowing or reckless disregard of whether conduct is proscribed by federal law. And, answering our certified question, the SJC has held that an action taken in reckless disregard of the ADEA is not conduct uninsurable under Massachusetts law. It would seem, therefore, that Continental is obligated under the policy to reimburse Andover for the loss if the jury's finding of willfulness rested on a finding of recklessness.

Continental, however, advances one further reason why Andover's conduct falls within the Massachusetts statute's proscription. It argues that, in an individual disparate treatment case, a finding of liability constitutes a finding of intentional discrimination. See, e.g., Menzel v. Western Auto Supply Co., 848 F.2d 327, 329 (1st Cir.1988) ("finding of pretext is the equivalent of a finding that the employer intentionally discriminated"). Therefore, Continental suggests, once the jury found liability, coverage was illegal under the Massachusetts statute, and the finding of willfulness was unnecessary.

Continental relies for this argument on cases from other circuits adopting a standard of willfulness higher than the Thurston standard in actions alleging individual disparate treatment because, in such cases, a finding of liability requires a finding of intentional discrimination, and therefore willfulness will almost always be present. ¹ Those courts concluded that a more stringent willfulness standard must be applied in such cases to respond to the Thurston Court's understanding that "willfulness" was not intended to be interpreted so as to result in double damages in almost every case. See Thurston, 469 U.S. at 128, 105 S.Ct. at 625. But these cases do not state that every finding of liability in an individual disparate treatment case necessarily requires a finding of willfulness under the Thurston standard. ² More importantly, these cases do not even come close to suggesting that the standard for liability in individual disparate treatment cases is higher than the Thurston standard for willfulness--in other words, that a finding of discrimination precludes the employer's conduct from being merely reckless with regard to the Act--as defendant argues here.

In addition, the SJC's opinion expressly rejects the defendant's loose understanding of the word "intentional." As the court says, "[t]he fact that a wrongful act was committed intentionally ... does not alone bar coverage. That bar arises only if an intentionally committed, wrongful act was also done deliberately or intentionally, in the sense that the actor knew that the act was wrongful." Andover Newton, 409 Mass. at 352, 566 N.E.2d 1117. ³

There is no indication in this case that the jury made a determination about Andover's state of mind other than in its conclusion that Andover had acted willfully--a finding that would bar recovery only if the jury based its determination on a conclusion that Andover knew its actions were wrongful. Instead, the jury was asked to determine whether "age was a motivating factor in [Linn's] discharge in the sense that but for defendant's motive to discriminate against him because of his age he would not have been discharged." And the judge specifically instructed the jury that Andover legally could not consider the availability of a pension to Linn or make assumptions about the productivity of older persons in deciding which faculty member to terminate. The jury could have found that Andover considered these factors--and therefore discriminated--without consciously appreciating the illegality of its act. See Burlew, 869 F.2d at 1066 (" '[A]ge discrimination may simply arise from an unconscious application of stereotyped notions of ability rather than from a deliberate desire to remove older employees from the workforce....' ") (quoting Syvock v. Milwaukee Boiler Mfg. Co., 665 F.2d 149, 154-55 (7th Cir.1981), overruled in part by Coston v. Plitt Theatres, Inc., 860 F.2d 834 (7th Cir.1988) (emphasis in original)). There is simply nothing inherent in the finding of age discrimination or in the instructions given the jury here that rendered a finding of willfulness...