National Union Fire Ins. Co. v. City of Leeds

• Decision Date: 22 July 1988
• Citation: 530 So.2d 205
• Parties: 47 Fair Empl.Prac.Cas. (BNA) 1233 NATIONAL UNION FIRE INSURANCE COMPANY v. CITY OF LEEDS. 87-368.
• Court: Alabama Supreme Court

Page 205

530 So.2d 205

47 Fair Empl.Prac.Cas. (BNA) 1233

NATIONAL UNION FIRE INSURANCE COMPANY v. CITY OF LEEDS.

87-368.

Supreme Court of Alabama.

July 22, 1988.

Rehearing Denied Aug. 19, 1988.

Clarence L. McDorman, Jr., and Gary P. Smith, Birmingham, for appellant.

Thomas A. Carraway of Rives & Peterson, Birmingham, for appellee.

MADDOX, Justice.

This is a declaratory judgment action involving the interpretation of an insurance policy. The issue is one of first impression: Is an award of backpay to a city employee who filed a claim against the city under Title VII of the Civil Rights Act "equitable relief," and, therefore, excluded from coverage under a policy that provided coverage for "discrimination" claims?

The plaintiff, National Union Fire Insurance Company ("NUFIC"), sought construction of an insurance policy it had issued to the defendant, the City of Leeds. Leeds had previously been sued under Title VII of the Civil Rights Act, 42 U.S.C. § 1981, by Leon Houston Embry, a former city employee. Embry claimed that he had been wrongfully discharged from his job as a firefighter and, after a trial, the city was ordered to reinstate him and pay him $41,897 in backpay. The city in turn sought this amount from NUFIC. NUFIC then brought this action, seeking a declaration of its rights under its insurance contract with the city.

However, NUFIC specifically reserved its right to later refuse to pay any judgment based on an exclusion contained in the policy. Specifically, NUFIC contended that the policy's definition of "damages" excluded equitable relief and that the award of backpay to Embry was equitable relief.

The policy in issue unquestionably covered claims for discrimination and NUFIC defended the city in the action brought by Embry. The policy language reads as follows:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury (herein called 'personal injury') sustained by any person or organization and arising out of one or more of the following offenses committed in the conduct of the named insured's business:

"Personal injury means:

" * * *

"(d) discrimination...."

The clause NUFIC contends is controlling reads:

"AMENDED DEFINITIONS: 'Damages'--means monetary damages and does not include any claim seeking only injunctive or equitable relief."

Both parties filed motions for summary judgment and the trial judge ruled that the policy did, in fact, provide coverage. He issued a written order, from which we quote extensively:

"The issue here presented is whether the award of backpay against the City of Leeds is excluded from coverage because such award is considered to be equitable relief.

"Courts differ in their characterization of backpay. Some courts characterize backpay as being an equitable remedy, while other courts view backpay as legal damages.

" * * *

"In Liberty Mutual Ins. Co. v. Those Certain Underwriters at Lloyds, 650 F.Supp. 1553, 42 F.E.P. Cases 1385 (W.D.Pa.1987), the district court addressed the issue of whether backpay is equitable relief and therefore not covered in an insurance policy's definition of damages. The district court rejected the defendant Underwriters' argument that backpay was not 'damages' but rather an equitable remedy:

" 'The cases cited do not deal with the construction and interpretation of insurance policies. Rather they demonstrate a hypertechnical distinction between 'damages' and equitable relief which has no relevance beyond the narrow scope of these cases. They certainly should not be employed to define 'damages' in an insurance policy where such terminology is to be construed in accord with the plain meaning of the term and the reasonable expectations of the insured. We do not believe the specialized definition employed in the cases cited by the defendants serve[s] the goals of construction.'

"Id. [650 F.Supp. at 1560, 42 F.E.P. Cases] at 1390.

"National Union correctly distinguishes Liberty Mutual from the case at bar, noting that the National Union policy provides a definition of damages clearly excluding equitable relief from coverage, whereas no such definition was found in the Liberty Mutual policy.

"However, the Liberty Mutual rationale still applies. The technical distinction between legal damages and equitable relief should not act as a bar to coverage where the insured purchased a policy covering monetary damages awarded in discrimination suits, especially where courts disagree as to whether back pay is equitable or legal in nature.

" * * *

"Even if this Court were to agree with National Union that backpay is an equitable remedy, it does not necessarily follow that the correct interpretation of the insurance policy issued to the City of Leeds excludes backpay from coverage.

"The City of Leeds sought to protect itself from liability arising out of discrimination claims. To that end, the City of Leeds purchased an insurance policy that did, in fact, provide coverage for discrimination claims. Accrued backpay is often the most substantial monetary liability suffered by an employer in a discrimination suit. It would appear illogical that the City of Leeds would purchase an insurance policy covering discrimination claims but not covering claims for backpay.

"Accordingly, the motion for summary judgment filed by the City of Leeds is hereby granted. National Union is directed to pay the sum of $41,897.00 awarded by U.S. District Judge U.W. Clemon as backpay plus attorney's fees and costs."

On this appeal NUFIC makes the same argument it made in the trial court--that backpay is equitable relief and that the damages awards in the Embry case are, therefore, expressly excluded under the terms of the policy. NUFIC cites several federal cases, most of them dealing with the right to a jury trial, holding that an award of backpay is an...