Transport Ins. Co. v. Lee Way Motor Freight

• Decision Date: 24 April 1980
• Docket Number: Civ. A. No. 3-78-0306-H.
• Citation: 487 F. Supp. 1325
• Parties: TRANSPORT INSURANCE COMPANY, Plaintiff, v. LEE WAY MOTOR FREIGHT, INC., Defendant.
• Court: U.S. District Court — Northern District of Texas

487 F. Supp. 1325

TRANSPORT INSURANCE COMPANY, Plaintiff, v. LEE WAY MOTOR FREIGHT, INC., Defendant.

Civ. A. No. 3-78-0306-H.

United States District Court, N. D. Texas, Dallas Division.

April 24, 1980.

John L. Lancaster, III, D. Paul Dalton Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Tex., for plaintiff.

James D. Foliart, Glen D. Huff, Foliart, Mills & Niemeyer, Oklahoma City, Okl., Royal H. Brin, John H. Hall, Strasburger & Price, Dallas, Tex., for defendant.

OPINION AND ORDER

SANDERS, District Judge.

Plaintiff Transport Insurance Company ("Transport") sues its insured, Defendant Lee Way Motor Freight, Inc. ("Lee Way"), for declaratory judgment pursuant to Title 28, United States Code § 2201 in order to determine the extent of Transport's liability under excess umbrella insurance policies that provide coverage for damages that Lee Way must pay on account of discrimination.

In a previous suit, United States v. Lee Way, Lee Way was found to have engaged in a pattern and practice of race discrimination and ordered to pay over $1.8 million in damages to individual discriminatees. In the present case Transport asks this Court to determine (1) whether the liability imposed upon Lee Way in the previous suit resulted from a single occurrence, a separate occurrence as to each of the four terminal locations involved, or a separate occurrence as to each of the individual discriminatees, (2) whether certain back-pay awards imposed upon Lee Way fell within or outside of the applicable policy coverages, and (3) whether (and how) Lee Way's costs of defending the discrimination suit should be apportioned between transport and Lee Way.

The Court finds and concludes (1) that the pattern and practice of discrimination found by the court in United States v. Lee Way constitutes "one occurrence" as that term is used in the insurance policies; (2) that back pay for the period prior to the inception of the policies on January 1, 1967, is not covered by the policies but back pay for all discriminatees after January 1, 1967, is within the policy coverage; and (3) that Lee Way's defense costs in United States v. Lee Way are fully reimbursable and should not be apportioned.

I. Background

A. United States v. Lee Way

In June of 1972, the United States filed suit against Lee Way and two labor unions, alleging that they had engaged in and were engaging in a pattern and practice of discrimination in employment. United States v. Lee Way Motor Freight, Inc., et al., W.D. Okla., Civil Action No. 72-445. Following several months of trial, the district court issued its findings and conclusions December 27, 1973, in which it found and concluded that Lee Way had engaged in a pattern and practice of employment discrimination. The court determined that Lee Way had discriminated on the grounds of race in its hiring practices and in its promotion and transfer policies, all of which operated to restrict black employees to the poorest paying and least desirable jobs.¹ The court noted that certain practices, although neutral on their face, operated to freeze the status quo of prior discriminatory practices and thus could not be lawfully maintained.

After referring the case to a special master for determination of individual entitlement to relief, the trial court entered its final judgment October 11, 1977, wherein it ordered Lee Way to pay the sum of $1,818,191.33 as damages in the form of forty-seven individual back-pay awards, ranging from $3,000 to $138,000. The judgment was appealed, and in September 1979, the Tenth Circuit Court of Appeals affirmed the district court's judgment but remanded the case for consideration of additional damages.

B. The Insurance Policies

For many years prior to the filing of United States v. Lee Way, Lee Way had purchased all its insurance coverage from Transport. In January 1967, Lee Way purchased from Transport additional insurance in the form of a series of eight excess umbrella insurance policies which afforded substantially higher limits of liability and broader coverages than the underlying Transport policies. This excess umbrella coverage (in the form of annually renewed policies) was in effect from January 1, 1967, through early 1978. The first five policies (those in effect from January 1, 1967, until mid-1972) expressly provided coverage for discrimination. However, in late August or early September 1972, Transport rewrote the umbrella policy then in effect with an endorsement excluding any future coverage for discrimination. Consequently, in this action the Court is only concerned with the five umbrella policies which were in effect from January 1, 1967, through late August or early September, 1972.

The parties have stipulated that a specimen policy (admitted into evidence) contains the language relevant to all the policies in question. The general coverage provision says that Transport will indemnify Lee Way

"for all sums which Lee Way shall be obligated to pay by reason of the liability imposed upon Lee Way by law . . . for damages, . . . on account of personal injuries . . . caused by or arising out of each occurrence happening anywhere in the world."

The term "personal injuries" is separately defined and includes discrimination as one kind of personal injury. Also defined is "occurrence":

The term "occurrence" means an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.

The declarations of the policies in question provide for a deductible amount to be borne by Lee Way of $25,000 per occurrence.

Thus, if Lee Way's discriminatory conduct constituted one occurrence, then Lee Way bears only one $25,000 deductible amount. If Lee Way's conduct as to each individual discriminatee constituted a separate occurrence as to each, then Lee Way must bear the first $25,000 of each back-pay award.

II. Single vs. Multiple Occurrence

The Court is unable to find another case that has addressed this precise issue. The question of what constitutes a single "accident" or "occurrence", as the terms are used within liability policies to limit an insurer's liability to a specified amount, has been addressed in numerous cases and is the subject of one annotation. 55 A.L.R.2d 1300; see also, 8 Appleman's Insurance Law and Practice § 4891 and Long, The Law of Liability Insurance §§ 2.12-2.14. The cases indicate that a court should "examine the policies in light of the business purposes sought to be achieved by the parties and the plain meaning of the words chosen by them to effect those purposes." Champion International Corp. v. Continental Casualty Co., 546 F.2d 502, 505 (2nd Cir. 1976); see also, Union Carbide Corp. v. Travelers Indemnity Co., 399 F.Supp. 12, 17 (W.D.Pa.1975). The district court in Union Carbide v. Travelers, supra, explained that a term such as "occurrence" should be construed in the light of the hazard insured against. Id.

In this case the hazard insured against is discrimination. In the prior litigation, Lee Way was found to have engaged in a "pattern and practice" of discrimination. "Pattern and practice" actions have the following characteristics:

1. A pattern and practice of discrimination exists only where the defendant routinely follows generalized policies, procedures or practices which have a discriminatory effect. Individual instances of discrimination are not a pattern and practice. See Teamsters v. United States, 431 U.S. 324, 336, 97 S.Ct. 1843, 1855, 52 L.Ed.2d 531 (1977); United State v. Mayton, 335 F.2d 153 (5th Cir. 1964); United State v. Dillon, 429 F.2d 800, 804 (4th Cir. 1970); United State v. Ironworkers, 443 F.2d 544, 551-552 (9th Cir. 1971); United States v. Jacksonville Terminal Co., 451 F.2d 418, 441 (5th Cir. 1971); United States v. T. I. M. E. — D. C., 517 F.2d 299, 319 (5th Cir. 1975); and United States v. City of Buffalo, 457 F.Supp. 612, 620 (W.D.N.Y.1978).

2. A pattern and practice of discrimination is ordinarily proven through the use of statistics and other evidence of a general nature. Proof of individual instances of discrimination alone is not proof of a pattern and practice. See, Teamsters v. United States, supra, 431 U.S. at 339 n. 20, 97 S.Ct. at 1856; United States v. Mayton, supra; United States v. Dillon, supra, at 804; United States v. Ironworkers, supra, at 550-551; United States v. T. I. M. E. — D. C., supra, at 311-313; United States v. City of Buffalo, supra, at 620, 621-622.

3. In a pattern and practice case, the cause of action belongs to the Government and not to the individuals affected. However, once the defendant's liability is established, the Government can obtain equitable relief (including back pay) for those specific individuals found to have been affected by the pattern and practice. See, Teamsters v. United States, supra, 431 U.S. at 360, 97 S.Ct. at 1867; United States v. Mayton, supra at 158; and United States v. Georgia Power Company, 474 F.2d 906 at 920-921 (5th Cir. 1973).

4. Intent to discriminate is irrelevant in a pattern and practice case. Instead, the Government must merely show that the defendant's policies, procedures or practices were not accidental or inadvertent. See, Griggs v. Duke Power Co., 401 U.S. 424, 432, 91 S.Ct. 849, 854, 28 L.Ed.2d 158 (1971); Teamsters v. United States, supra, 431 U.S. at 349, 97 S.Ct. at 1861; and United States v. Jacksonville Terminal Co., supra, at 438, 442-443.

5. In a pattern and practice case, the defendant's policies, procedures and practices need not themselves be discriminatory. Rather, if they are facially neutral but have the effect of perpetuating past discrimination, the defendant is nevertheless liable. See, Griggs v. Duke Power Co., supra, 401 U.S. at 430,

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