Cumberland v. INTERLOCAL RISK MGMT. TRUST, 2002-2-Appeal.

• Decision Date: 24 November 2004
• Docket Number: No. 2002-2-Appeal.,2002-2-Appeal.
• Citation: 860 A.2d 1210
• Parties: TOWN OF CUMBERLAND v. RHODE ISLAND INTERLOCAL RISK MANAGEMENT TRUST, INC. et al.
• Court: Rhode Island Supreme Court

860 A.2d 1210

TOWN OF CUMBERLAND v. RHODE ISLAND INTERLOCAL RISK MANAGEMENT TRUST, INC. et al.

No. 2002-2-Appeal.

Supreme Court of Rhode Island.

November 24, 2004.

Daniel V. McKinnon, Pawtucket, for Plaintiff.

Sheldon Whitehouse, Providence, for Defendant.

Present: WILLIAMS, C.J., GOLDBERG, and SUTTELL, JJ.

OPINION

GOLDBERG, Justice.

This case came before the Supreme Court on September 29, 2004, on appeal from a grant of summary judgment in favor of the plaintiff, Town of Cumberland (town or plaintiff). The defendants, Rhode Island Interlocal Risk Management Trust, Inc. (Trust), Coregis Indemnity Company (Coregis), and Underwriters at Lloyd's, London (Underwriters or, collectively, defendants),¹ challenge the findings of the trial justice that the town is entitled to indemnification for payments made in settlement of an underlying lawsuit alleging civil rights violations. For the reasons herein, we deny and dismiss the appeal and affirm the judgment of the Superior Court.

Facts and Travel²

This insurance coverage dispute arose out of plaintiff's payment of a $1.6 million settlement to Richard and G. Robert Savage (Savages) and L.A. Ray Realty (collectively, underlying claimants)³ for damages resulting from a course of conduct that can best be described as a dark chapter in the history of the Town of Cumberland. The plaintiff filed this action seeking a declaration that defendants were obligated to indemnify the town for the settlement amount; the town alleged breach of contract and insurer bad faith.⁴ The defendants sought a declaration that insurance coverage was not available because the conduct giving rise to the underlying litigation was outside the scope of coverage. An understanding of the history behind the town's settlement with the underlying claimants is necessary for our discussion. Thus, we have set forth those unfortunate events as follows.

On September 28, 1987, the town planning board (planning board) adopted new subdivision regulations establishing minimum-lot-size requirements. The underlying claimants previously had filed subdivision applications with the town that, by virtue of a "grandfather's rights clause,"⁵ would not be subject to the new regulations. On October 7, 1987, the town council amended the town zoning ordinance to reflect the new regulations, specifically exempting subdivision applications submitted before September 28, 1987, from the minimum-lot-size requirement.

In 1988, the town council considered two subsequent proposals to increase the minimum-lot-size requirement. The town council held public hearings, at which the underlying claimants appeared and opposed the measures; thereafter, both proposals were defeated. A town resident then took up the cause, circulating a petition for a referendum question on the November 1988 ballot to change the lot size requirement for all but previously recorded lots of record. On September 8, 1988, the town solicitor wrote to the Secretary of State asking that the issue be put on the November ballot. The town solicitor's letter included the zoning ordinance text as it would read if the citizens of the town approved the referendum question, including a savings clause that exempted all subdivision applications submitted before September 28, 1987. The townspeople approved the referendum question on November 8, 1988. On January 18, 1989, the town council amended the zoning ordinance, adding the new minimum acreage requirement but intentionally omitting the savings clause.⁶

On November 21, 1988, without adequate notice to the underlying claimants and despite compliance with all other regulations, the planning board summarily denied certain of their subdivision applications for noncompliance with the newly enacted minimum-lot-size ordinance. The underlying claimants sought a writ of mandamus in the Superior Court to compel the planning board to conduct hearings on their applications. The trial justice found that the underlying claimants were entitled to detrimental-reliance hearings and ordered the planning board to proceed accordingly. On July 17, 1989, the planning board, after hearings, again denied the subdivision applications. After an unsuccessful appeal to the town zoning board, the underlying claimants appealed to the Superior Court.

Meanwhile, the underlying claimants had filed a second complaint in the Superior Court challenging the validity of the zoning ordinance amendment. On appeal, this Court invalidated the zoning ordinance amendment because the initiative or referendum process did not comply with the procedural safeguards required for adoption or amendment of subdivision regulations and zoning ordinances. L.A. Ray Realty v. Town Council of Cumberland, 603 A.2d 311, 315 (R.I.1992) (L.A. Ray Realty I). Our decision in L.A. Ray Realty I mooted the underlying claimants' appeal of the town zoning board's decision, prompting them to amend their complaint to allege substantive and procedural due process violations and intentional interference with prospective economic advantage.

The trial justice found that the town did not deprive the underlying claimants of any due process rights but that it did tortiously interfere with their prospective economic advantage, inviting the parties to submit briefs on causation and damages.⁷ On June 26, 1995, the trial justice found that the underlying claimants had suffered damages amounting to $1,094,742.81. However, under the Governmental Tort Liability Act, G.L. 1956 chapter 31 of title 9, recovery was limited to $100,000 per claimant. On appeal, in L.A. Ray Realty v. Town Council of Cumberland, 698 A.2d 202 (R.I.1997) (L.A. Ray Realty II), this Court held that, in addition to intentionally interfering with the underlying claimants' prospective economic advantage, the town violated their substantive and procedural due process rights. Further, we concluded that the underlying claimants were entitled to recover the full amount of their damages under 42 U.S.C. § 1983.

On remand to the Superior Court for a determination of the proper amount of damages,⁸ the town settled with the underlying claimants for approximately $1.6 million and sought indemnification from defendants. The defendants' denial of the town's indemnification claim prompted this lawsuit.

The town filed a complaint alleging breach of contract and seeking a declaratory judgment that it was entitled to indemnification for the amount paid to settle the underlying lawsuit. The town moved for summary judgment, asserting that its insurance policies afforded coverage for civil rights violations and, therefore, defendants were obligated to indemnify it as a matter of law. The defendants also moved for summary judgment, countering that the intentional, illegal, and fraudulent nature of the town's actions precluded coverage under the terms of the policies and, further, recovery for the conduct would contravene Rhode Island public policy. Additionally, defendants argued that the town's denial of the underlying claimants' subdivision applications amounted to a constructive taking and such takings were specifically excluded from the town's coverage.

The motion justice granted summary judgment for the town finding that the town was entitled to indemnification under the Trust policy because coverage for civil rights violations was explicitly included. Neither the exclusion for fraudulent actions found in the errors and omissions clause, nor Rhode Island public policy, precluded coverage under the general liability policy.⁹ Furthermore, the motion justice found that the exclusion for payments arising out of condemnation of land was inapplicable. The defendants appeal from the judgment of the Superior Court.¹⁰

On appeal, defendants jointly raise three issues for our review. The defendants challenge the motion justice's finding that the general liability policy provides coverage for personal injuries that are intentional or expected. Further, defendants contest the motion justice's finding that Rhode Island public policy does not prohibit the payment of insurance benefits for damages intentionally caused by the insured. Lastly, defendants assert that the motion justice erred in finding that the town's claim was not barred by the exclusion for claims "in any way connected with * * * condemnation" of property.

In addition, defendant Coregis separately raises four issues pertaining to provisions of its excess liability policy that differ from the Trust policy. The motion justice did not reach Coregis's separate claims in his decision. Coregis asserts that both its inverse condemnation exclusion and its expected or intended liability exclusion apply to these facts and bar recovery. Apparently classifying the underlying claimants' injuries as property damage, Coregis further contends that claims for diminution of value do not qualify as property damage under the excess liability policy. Finally, Coregis argues that its public officials liability exclusion precludes coverage for the town's claim.

Standard of Review

"It is well settled that this Court reviews the granting of a summary judgment motion on a de novo basis." M & B Realty, Inc. v. Duval, 767 A.2d 60, 63 (R.I.2001) (citing Marr Scaffolding Co. v. Fairground Forms, Inc., 682 A.2d 455, 457 (R.I.1996)). The same standards applicable to the trial justice govern our review. Id. (citing Rotelli v. Catanzaro, 686 A.2d 91, 93 (R.I.1996)). "Accordingly, we will affirm a summary judgment if, after reviewing the admissible evidence in the light most favorable to the nonmoving party, we conclude that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Rotelli, 686 A.2d at 93 (citing Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I.1996) and Providence Journal Co. v. Sundlun, 616 A.2d 1131, 1133 (R.I.1992)).

Coverage for Personal Injuries under the General Liability Clause

The defendants assert that...