Western Line Consol. Sch. Dist. v. Continental Cas. Co., Civ. A. No. GC 82 211 GD D.
| Decision Date | 18 March 1986 |
| Docket Number | Civ. A. No. GC 82 211 GD D. |
| Citation | 632 F. Supp. 295 |
| Parties | WESTERN LINE CONSOLIDATED SCHOOL DISTRICT, Plaintiff, v. CONTINENTAL CASUALTY COMPANY and CNA Financial Corporation, Defendants. |
| Court | U.S. District Court — Northern District of Mississippi |
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J. Robertshaw, Robertshaw, Terney & Noble, Greenville, Miss., for plaintiff.
John L. Low, IV, Watkins & Eager, Jackson, Miss., for defendants.
This is a suit by Western Line School District (Western Line) against Continental Casualty Company (Continental) and its parent corporation, CNA Financial Corporation (CNA) for an alleged bad faith refusal to pay benefits, consisting primarily of attorney's fees, under an indemnity insurance policy insuring Western Line for its costs and any judgment awarded against it in actions by third parties. Western Line is a school district organized under the laws of the state of Mississippi and comprising portions of Washington and Issaquena Counties. Continental and CNA are corporations with their principal place of business at 1 CNA Plaza, Chicago, Illinois. Since the parties are diverse and the amount in controversy, exclusive of interest and costs, exceeds $10,000, this court has jurisdiction pursuant to 28 U.S.C.A. Section 1332. In this bench trial the court proceeds with its findings of fact and conclusions of law.1
In August 1974, Western Line purchased a school board legal liability policy issued by International Insurance Company. This coverage was subsequently replaced, on recommendation of insurance agent, Moyse & Moyse & Wasson, with the policy in suit (plaintiff's ex. 3) entitled Board of Education Liability Including School District Reimbursement Policy, effective September 8, 1975. This policy provided Western Line and other insureds liability protection and indemnification in the event of a claim or suit against it by third parties. Under the policy, the insured was obligated to retain its own counsel and pay any fees, costs, expenses or any possible judgment which might be rendered. Upon "disposition", the defendants, the insurers, are then obligated to indemnify or reimburse the insured for any cost or judgment paid, less a $2,500 retention per claim. At issue in this suit are three lawsuits filed against Western Line by: (1) Ray Joe Quong; (2) a class action suit in the name of Brenda Crawford; and (3) a lawsuit relative to re-employment filed by Chariety Wright. Western Line successfully defended all three suits but brings this action to recover certain losses, primarily attorney's fees, not yet paid by the insurer and to seek punitive damages for payments that were delayed even though the defendant did not contest the coverage or amount owed. It is significant that many of the events that constitute the basis of plaintiff's claim for reimbursement occurred subsequent to the filing of the complaint herein on August 31, 1982.
Western Line originally sued Continental to be reimbursed for losses in defense of the actions filed by Quong and Crawford plus prejudgment interest, attorney's fees and punitive damages. On February 1, 1983, the court ruled that a pertinent provision of the policy was ambiguous and that the matter could not therefore be disposed of on a motion for summary judgment. However, the court granted partial summary judgment as to amounts owed on the Quong claim since the defendants did not contest owing this amount. The plaintiff submitted a motion to amend the judgment by awarding prejudgment interest on the February 1 award, but this motion was denied on March 22, 1983. Subsequently, Western Line filed an amended complaint adding CNA as a defendant. Western Line then filed a second motion for partial summary judgment seeking $31,599.69 on February 28, 1984 incurred in the defense of the Crawford claim. The defendants did not resist this motion and the plaintiff withdrew the motion without prejudice. The parties stipulated that, as a result of mistake, Western Line failed to include invoices for $6,413.30 on the Crawford claim. In August 1984, Western Line filed a second amended complaint, adding a third claim for fees and expenses incurred in defending the Wright claim.
Quong initiated his actions against Western Line by filing a bill for an injunction in the Chancery Court of Washington County seeking to require Western Line to reinstate him as assistant principal at Glen Allan School. Western Line's demurrer was sustained and the case was appealed to the Supreme Court of Mississippi. Quong, a Chinese American, subsequently filed a charge of racial discrimination with the EEOC. While this action was pending, Quong's appeal to the Mississippi Supreme Court was dismissed by that court on January 30, 1980. Western Line then billed Continental on February 1, 1980 for $4,200.95 for legal fees incurred to that date in defending both the chancery court action and the appeal to the supreme court as well as the EEOC charge. This amount was paid on February 22, 1980, less the $2500 retention.
Quong then filed an action alleging racial discrimination in federal district court which was tried on August 24 and 25, 1981 and judgment was entered for Western Line on August 26. On September 5, 1981, Western Line filed a claim with Continental for the expenses incurred in defending that action. This claim was paid on April 28, 1982 after a lapse of 235 days. The federal district court decision was appealed to the Fifth Circuit and was affirmed on July 29, 1982. On August 2, the school district filed a claim with Continental for $6,489.90. This claim was received by Continental on August 5, 1982. Payment not being made by August 31, 1982, Western Line filed the suit, sub judice. On February 1, 1983 partial summary judgment was entered in Western Line's favor. Plaintiff sought to amend the judgment by asking the court to order summary judgment upon a separate claim and by awarding prejudgment interest on the February 1 award. The court refused to enlarge its grant of summary judgment and likewise refused to award prejudgment interest since the record according to the judge then presiding did not reveal that the defendant acted in bad faith or frivolously refused to pay the claim in dispute. Continental paid Western Line on May 9, 1983, a total lapse of 280 days between the time Western Line requested the payment and the time of actual payment.
This was a class action in the name of Brenda Crawford filed against Western Line on January 25, 1980. On November 12, 1981, the defendants requested an update on attorneys' fees and expenses incurred and estimated future expenses. On November 16, 1981, Western Line furnished an itemized statement of expenses through June of 1981 in the amount of $13,960.17 and requested losses be paid on a quarterly or semi-annual basis. On May 5, 1982, Western Line submitted an additional itemization of $18,548.30 and made a formal request for this amount less $2,500 retention. On May 25, 1982, Continental denied the school district's request for interim payments restating its policy expressed in letters dating back to January 24, 1980 to the effect that Continental did not pay interim costs but preferred to make payments at the conclusion of the file or at the conclusion of litigation except in "rare instances." (See defendants' exs. 1, 2 and 3). Continental again restated its policy on July 2, 1982 saying that interim payments were to be made only at its option pursuant to the provisions of the insurance policy.
On May 29, 1982, the United States District Court entered judgment dismissing the Crawford class action suit with prejudice. Thereafter, Western Line made several requests for payment and formally demanded payment on August 2, 1982. On August 31, 1982, Western Line filed its action sub judice against Continental seeking reimbursement for its costs incurred in the Crawford action as well as those costs incurred in the Quong lawsuit. As discussed previously, on February 1, 1983, in the case sub judice the federal district court denied partial summary judgment as to the Crawford claim, stating that an ambiguity existed in the insurance policy and that resolution of the issue was one for the trier of fact. On May 2, 1983, Continental issued a check in the amount of $6,629.06 for a loss occurring on January 28, 1980. Subsequently, the May 29, 1982 judgment dismissing the Crawford class action with prejudice was appealed to the Fifth Circuit, reversed and remanded and final judgment was entered on February 24, 1984 in federal district court pursuant to the Fifth Circuit opinion of July 18, 1983. Consequently, Western Line filed its motion for partial summary judgment in the case sub judice seeking $31,599.69 for incurred losses on the Crawford claim which was not resisted by Continental, and subsequently $30,399.92 was paid after delays of 107 days. Western Line later withdrew its motion for partial summary judgment but noted that the payments received did not include interest and stated that it was withdrawing the motion without prejudice to both its claim for interest and punitive damages.
Chariety Wright, a teacher employed by Western Line was given notice that she would not be offered an employment contract for the school year 1983-84 on April 6, 1983. Pursuant to state law she was given a hearing before the school board, and from the record established in subject hearing she prosecuted appeals to the Chancery Court of Washington County and ultimately to the Mississippi Supreme Court. On July 7, 1983, Western Line concluded that the legal cost of the suit would exceed the $2,500 retention and notified Continental of the suit. Subsequently, Wright filed an EEOC racial discrimination suit and another racial discrimination suit with the office of Civil Rights of the U.S. Department of Education. The chancery court...
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