United States Court of Appeals Fifth Circuit F I L E D In the United States Court of Appeals July 25, 2005 For the Fifth Circuit Charles R. Fulbruge III _________________________ Clerk
No. 04-30445
_________________________
KATIE COLEMAN,
Plaintiff,
versus
SCHOOL BOARD OF RICHLAND PARISH,
Defendant - Third Party Plaintiff - Appellant,
MID-CONTINENT CASUALTY INSURANCE CO.,
Third Party Defendant - Appellee.
Appeal from the United States District Court For the Western District of Louisiana _________________________
Before HIGGINBOTHAM, SMITH, and BENAVIDES, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Mid-Continent Casualty Insurance Company agreed to insure the
Richland Parish School Board against various risks, including loss
resulting from claims based on actual or alleged racial
discrimination, racial harassment, and breach of contract.
Following execution of this agreement, a lawsuit was filed against
the School Board alleging federal claims for intentional racial discrimination, and state claims for breach of contract and abuse
of rights. Mid-Continent refused to defend the suit on grounds
that the policy excluded from coverage acts committed with
knowledge of their wrongful nature or with intent to cause damage.
We find that the policy did not provide coverage for claims
alleging acts of intentional racial discrimination committed by
members of the School Board. However, we also conclude that Mid-
Continent breached its duty to defend the School Board because the
plaintiff’s complaint alleged non-excluded claims for breach of
contract and abuse of rights.
I
Katie Coleman, an African-American woman, applied for the
newly-created position of associate principal at Rayville
Elementary School in Rayville, Louisiana. Coleman, who had
previously worked as a teacher in another Parish, was awarded the
position and received a two-year contract of employment. She
began serving as associate principal on September 6, 2000. In
October 2000, she was asked to resign by the superintendent of the
School Board. She refused to comply. The School Board then held
a hearing to consider nine separate charges of insubordination
levied against Coleman and, after finding her guilty of four, voted
to terminate her employment.1
1 The charges included seven allegations related to Coleman’s failure to perform “bus duty,” one allegation that Coleman addressed the Rayville Elementary principal in an unprofessional and insubordinate manner, and one allegation that Coleman improperly used a federally-funded copier for a non-designated use.
2 Coleman filed suit against the School Board alleging that she
had been discriminated against and terminated on account of her
race. She brought claims under Title VII of the Civil Rights Act,2
42 U.S.C. §§ 1981 and 1983, and pleaded state law causes of action
for breach of contract and abuse of rights. Coleman alleged that
the position of associate principal at Rayville Elementary had been
created as a concession by white members of the School Board only
after African-American members agreed to campaign within the
African-American community on behalf of a school bond proposal to
be voted on in October of 2000. She claimed that she accepted the
position without knowledge of these “political under-currents.”
Coleman alleged that the next business day after the bond
proposal passed, she was asked to resign. According to Coleman,
the superintendent “explained the political reality of her
appointment and told her that she risked ruining her career if she
did not resign.” She alleged that he then threatened her with
continuous “write-ups” and eventual termination if she did not
relent to his demands, and offered to buy out one year of her two-
year contract. She claimed that after this meeting, she was
subjected to disparate enforcement of the Board’s rules and
regulations, and was continuously written-up for infractions that
she did not commit. These events ultimately culminated in her
termination by the Board without the consent and approval of
2 42 U.S.C. § 2000e et seq.
3 several African-American members.
Prior to terminating Coleman, the School Board purchased an
Educators Legal Liability Policy from Mid-Continent. The policy
obligated Mid-Continent to defend and indemnify the Board, its
directors, trustees, officers, and employees against loss resulting
from any “claim” made during the policy period, which ran from
October 11, 2000, through October 11, 2001. The policy defined
“claim” as any written notice received by an insured, or any
judicial or administrative proceeding initiated against an insured,
seeking to hold the insured responsible or liable for a “wrongful
act.” The policy defined “wrongful act” as “any actual or alleged
act, error, omission, misstatement, misleading statement, neglect
or breach of duty” committed by an insured party in the discharge
of his duties, including:
(1) actual or alleged discrimination, whether based upon race, sex, age, national origin, religion, disability or sexual orientation;
(2) actual or alleged sexual or racial harassment;
(3) actual or alleged libel, slander or other defamation;
(4) actual or alleged invasion of privacy; or
(5) actual or alleged interference with or breach of any employment contract, whether oral, written, express or implied.
The policy also contained a provision excluding coverage for loss
resulting from any claim “brought about or contributed to in fact
by any dishonest, fraudulent or criminal Wrongful Act or by any
4 Wrongful Act committed with actual knowledge of its wrongful nature
or with intent to cause damage.”
The School Board tendered the defense of Coleman’s lawsuit to
Mid-Continent pursuant to the terms of the policy. Mid-Continent
denied coverage and declined to defend the suit, prompting the
School Board to file a third-party claim against Mid-Continent.
Mid-Continent filed a motion for summary judgment arguing that it
had no duty to defend or indemnify the Board on grounds that
coverage for Coleman’s claims was precluded by the exclusion for
acts committed with actual knowledge of their wrongful nature or
intent to cause damage. The School Board filed a cross-motion for
summary judgment arguing that it was entitled to a defense and
indemnity on grounds that the policy explicitly provided coverage
for actual or alleged racial discrimination and racial harassment.
While these motions were pending, the School Board defended
against Coleman’s suit at its own cost and ultimately reached a
settlement. Following this settlement, the district court entered
summary judgment in favor of Mid-Continent on the School Board’s
third-party claim, and denied the Board’s motion for summary
judgment. The court found that coverage for all of Coleman’s
claims was precluded by the policy’s intentional acts exclusion.
The Board timely appealed.
II
We review the grant of a motion for summary judgment de novo,
5 applying the same standards employed by the district court.3 “We
review the legal question of the district court’s interpretation of
an insurance contract de novo, as well as its determination of
state law.”4 Summary judgment is appropriate if “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.”5 The party moving for summary
judgment “bears the burden of identifying those portions of the
record it believes demonstrate the absence of a genuine issue of
material fact.”6 The burden then shifts to the non-moving party to
“show the existence of a genuine fact issue for trial.”7 We view
all evidence and reasonable inferences from the evidence in the
light most favorable to the non-moving party.8
III
On appeal, the School Board contends that the district court
erred in holding that Mid-Continent was not obligated to defend and
indemnify the Board against claims alleging intentional racial
3 See Blakely v. State Farm Mut. Auto Ins. Co., 406 F.3d 747, 750 (5th Cir. 2005). 4 Id. (citations omitted). 5 FED. R. CIV. P. 56(c).
6 Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005). 7 Id. 8 Id. at 350.
6 discrimination. In addition, the School Board argues that even if
coverage for intentional discrimination were excluded, Mid-
Continent would still be obligated to defend against Coleman’s suit
because her complaint alleged non-excluded claims for breach of
contract and abuse of rights. We take up these arguments in turn.
A
The School Board’s primary argument on appeal centers on its
contention that Mid-Continent was obligated to defend and indemnify
it against the totality of Coleman’s lawsuit because the policy
explicitly provided coverage for actual or alleged racial
discrimination and racial harassment. The Board acknowledges, as
it must, the presence of the exclusion for intentional acts, but
urges that the exclusion cannot be squared with the policy’s
explicit coverage of racial discrimination and racial harassment as
both are inherently intentional in nature. The Board argues that
any attempt to reconcile the policy’s exclusion with its coverage
for discrimination and harassment leads to the absurd result that
coverage is available only for “unintentional” “intentional” acts.
Moreover, the Board posits that even if this result were
permissible under established rules of contract interpretation, it
would run afoul of Louisiana’s reasonable expectations doctrine.
Mid-Continent rejects these contentions, arguing that coverage
is available only for wrongful acts committed without knowledge of
their wrongful nature or with intent to cause damage. It claims
7 that this limitation does not render coverage for discrimination or
harassment illusory because it cuts back, but does not wholly
eliminate, such coverage. In addition, it asserts that limiting
coverage of discrimination and harassment claims in this manner is
consistent with Louisiana public policy. Accordingly, Mid-
Continent contends that it had no duty to defend or indemnify the
School Board against any of Coleman’s claims.
The parties agree that Louisiana law must guide our
interpretation of the insurance policy.9 Under Louisiana law, “an
insurance policy is a contract that must be construed in accordance
with the general rules of interpretation of contracts set forth in
the Louisiana Civil Code.”10 Under the Civil Code, “[t]he
judiciary’s role in interpreting insurance contracts is to
ascertain the common intent of the parties to the contract.”11 “The
words of a contract must be given their generally prevailing
meaning,”12 and “[w]hen the words of a contract are clear and
explicit and lead to no absurd consequences, no further
9 See Thermo Terratech v. GDC Enviro-Solutions, Inc., 265 F.3d 329, 334 (5th Cir. 2001) (finding that provisions of an insurance policy are interpreted in accordance with the law of the state in which the policy was delivered). 10 Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 262 (5th Cir. 2003). 11 Mayo v. State Farm Mut. Auto. Ins. Co., 869 So. 2d 96, 99 (La. 2004) (citing LA. CIV. CODE ANN. art. 2045 (West 1987)). 12 LA. CIV. CODE ANN. art. 2047 (West 1987).
8 interpretation may be made in search of the parties’ intent.”13
Moreover, “[e]ach provision in a contract must be interpreted in
light of the other provisions so that each is given the meaning
suggested by the contract as a whole.”14 Importantly, Louisiana law
mandates that an insurance policy “should not be interpreted in an
unreasonable or strained manner so as to enlarge or to restrict its
provisions beyond what is reasonably contemplated by its terms or
so as to achieve an absurd conclusion.”15
With respect to coverage, the insured bears the burden of
proving that the incident giving rise to a claim falls within the
policy’s terms.16 However, “the insurer bears the burden of proving
the applicability of an exclusionary clause within the policy.”17
Exclusionary provisions must be read together with the entire
policy, and are construed strictly against the insurer and in favor
of coverage.18 Any ambiguities within an exclusionary provision or
13 LA. CIV. CODE ANN. art. 2046 (West 1987); see In re Liljeberg Enters., Inc., 304 F.3d 410, 440 (5th Cir. 2002). 14 LA. CIV. CODE ANN. art. 2050 (West 1987).
15 La. Ins. Guar. Ass’n., 630 So. 2d at 763; see also Mayo, 869 So. 2d at 99-100 (“The rules of construction do not authorize a perversion of the words or the exercise of inventive powers to create an ambiguity where none exists or the making of a new contract when the terms express with sufficient clarity the parties’ intent.”); Reynolds v. Select Props., Ltd., 634 So. 2d 1180, 1183 (La. 1994).
16 See Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000).
17 Id. 18 See Garcia v. Saint Bernard Parish Sch. Bd., 576 So. 2d 975, 976 (La. 1991); Vallier v. Oilfield Constr. Co., 483 So. 2d 212, 215 (La. Ct. App. 1986).
9 the policy as a whole must be construed against the insurer and in
favor of coverage.19 To this end, ambiguities within an insurance
policy will “be resolved by ascertaining how a reasonable insurance
policy purchaser would construe the clause at the time the
insurance contract was entered.”20 This rule, known as the
“reasonable expectations doctrine,” requires that a court construe
an ambiguous insurance policy “to fulfill the reasonable
expectations of the parties in the light of the customs and usages
of the industry.”21 Courts employing this rule may extend coverage
to meet the reasonable expectations of the insured, even though a
close examination of the policy reveals that such expectations are
in conflict with the expressed intent of the insurer.22 However,
19 LA. CIV. CODE ANN. art. 2056 (West 1987) (“In case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text.”); see Mayo, 869 So. 2d at 100 (“Ambiguous policy provisions are generally construed against the insurer and in favor of coverage. Under this rule of strict construction, equivocal provisions seeking to narrow an insurer’s obligation are strictly construed against the insurer.” (citation omitted)); Reynolds, 634 So. 2d at 1183 (“[A] provision which seeks to narrow the insurer’s obligation is strictly construed against the insurer, and, if the language of the exclusion is subject to two or more reasonable interpretations, the interpretation which favors coverage must be applied.”); La. Ins. Guar. Ass’n, 630 So. 2d at 764 (“If after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to be construed against the drafter, or, as originating in the insurance context, in favor of the insured.”); RPM Pizza, Inc. v. Auto. Cas. Ins. Co., 601 So. 2d 1366, 1369 (La. 1992) (“[E]ven if [an] exclusion is deemed ambiguous, insurance policies must be liberally construed in favor of coverage, and provisions susceptible of different meanings must be interpreted with a meaning that renders coverage effective and not with one that renders it ineffective.”). 20 Breland v. Schilling, 550 So. 2d 609, 610-11 (La. 1989). 21 La. Ins. Guar. Ass’n, 630 So. 2d at 764 (quoting Trinity Indus., Inc. v. Ins. Co. of N. Am., 916 F.2d 267, 269 (5th Cir. 1990)) (internal quotation marks omitted).
22 Id. at 764 n.9 (citing ROBERT E. KEETON & ALAN I. WIDISS, INSURANCE LAW § 6.13 (1988)).
10 when the “language of an insurance policy is clear, courts lack the
authority to change or alter its terms under the guise of
interpretation.”23
Looking to the plain language of the policy, coverage is
clearly available for loss caused by a “Wrongful Act,” including
actual or alleged racial discrimination and harassment. In
addition, the policy clearly excludes from coverage “any Wrongful
Act committed with actual knowledge of its wrongful nature or with
intent to cause damage.” Thus, the clear and explicit language of
the policy indicates that coverage is available for acts of racial
discrimination or harassment only if they are committed by an
insured without actual knowledge of their wrongful nature or intent
to cause damage.
The School Board argues that this interpretation contravenes
Louisiana’s established rules of contract interpretation.
Specifically, the Board contends that acts of racial discrimination
and harassment necessarily involve knowledge of their wrongful
nature and intent to cause harm, and that by limiting coverage of
such claims to those involving “unintentional” acts, the policy
offers coverage that is illusory and meaningless, giving rise to
ambiguity which must be resolved in favor of the insured. Further,
the Board urges that this result cuts against the reasonable
23 Id. at 764.
11 expectations raised by the policy’s coverage provisions, requiring
that coverage be found under the reasonable expectations doctrine.
A number of courts have held that an insurance policy that
purports to cover certain intentional acts or torts while
simultaneously limiting coverage to unintentional or unexpected
acts is ambiguous and must be construed against the drafter in
favor of coverage.24 Among these cases, the School Board relies
heavily on the unpublished opinion of the District Court for the
Eastern District of Louisiana in Manis v. St. Paul Fire & Marine
24 See North Bank v. Cincinnati Ins. Cos., 125 F.3d 983 (6th Cir. 1997) (finding ambiguity when an insurance policy provided coverage for acts of discrimination, yet excluded coverage for acts which did not occur unexceptedly or unintentionally); Hurst-Rosche Eng’rs, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336 (7th Cir. 1995) (same with respect to intentional torts such as libel, slander, defamation, false arrest, malicious prosecution, and humiliation while simultaneously limiting coverage to unintentional acts); Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1045 (7th Cir. 1987) (same with respect to advertising injury); Liberty Life Ins. Co. v. Commercial Union Ins. Co., 857 F.2d 945, 950-51 (4th Cir. 1988) (vacating summary judgment in favor of insurer on grounds that potential ambiguity was raised by apparent conflict between policy’s coverage of libel, slander, defamation and unfair competition, and limitation of coverage to unintentional or unexpected injuries); Titan Indem. Co. v. Newton, 39 F. Supp. 2d 1336, 1344 (N.D. Ala. 1999) (finding policy ambiguous when it provided coverage for false arrest, unlawful prosecution, and violations of civil rights, and then excluded coverage for intentional acts); Lineberry v. State Farm Fire & Cas. Co., 885 F. Supp. 1095, 1099 (M.D. Tenn. 1995) (same with respect to invasion of privacy); Lincoln Nat’l Health & Cas. Ins. Co. v. Brown, 782 F. Supp. 110, 113 (M.D. Ga. 1992) (same with respect to false arrest, malicious prosecution, and assault and battery); Purrelli v. State Farm Fire & Cas. Co., 698 So. 2d 618, 619-20 (Fla. Dist. Ct. App. 1997) (same with respect to invasion of privacy); Mo. Prop. & Cas. Ins. Guar. Ass’n v. Petrolite Corp., 918 S.W.2d 869, 873 (Mo. Ct. App. 1996) (finding an insurance policy that extended coverage to unintentional acts, including acts of discrimination, to be ambiguous, “complete nonsense,” and oxymoronic); Titan Indem. Co. v. Riley, 641 So. 2d 766, 768 (Ala. 1994) (same with respect to malicious prosecution, assault and battery, wrongful entry, piracy, and other intentional torts); see also Fed. Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 571 (7th Cir. 1997) (refusing to interpret a policy so that covered acts of discrimination were completely excluded by a later provision when meaning of provision was genuinely ambiguous); Transamerica Ins. Group v. Rubens, 1999 WL 673338 (S.D.N.Y. Aug. 27, 1999) (approving of the reasoning in North Bank v. Cincinnati Ins. Cos., 125 F. 3d 983 (6th Cir. 1997)).
12 Insurance.25 In Manis, the court addressed whether an insurance
policy issued to a city provided coverage for claims arising under
§ 1983 and the Louisiana Civil Code alleging that city police
officers violated the plaintiff’s civil rights by intentionally
using excessive force during the course of an arrest and detention.
The policy provided coverage for losses resulting from claims based
on injuries caused by “wrongful acts” such as, inter alia, false
arrest, malicious prosecution, and violations of civil rights
protected under federal or state laws. The policy limited coverage
in two ways. First, it defined “wrongful act” as “any error,
omission or negligent act.”26 Second, it expressly excluded
coverage for “injury or damage that results from any criminal,
dishonest or fraudulent act or omission.”27 The court found that
it could harmonize the policy’s coverage and exclusionary
provisions by interpreting the policy as providing coverage for
acts which “constitute[] error, omission or negligence, but [are]
not criminal, dishonest, or fraudulent.”28
The court found this interpretation “cramped,” noting that it
would preclude recovery for all excessive force claims brought
against Louisiana police officers under § 1983 because such claims
25 No. Civ. A. 01-599, 2001 WL 1397318 (E.D. La. Nov. 8, 2001) (unpublished).
26 Id. at *3 (internal quotation marks omitted). 27 Id. (internal quotation marks omitted). 28 Id.
13 necessarily involve conduct amounting to criminal battery under
Louisiana law. “Consequently,” the court opined, “two provisions
of the contract--one expressly covering liability for ‘violation of
civil rights’ and one excluding coverage for injury or damage
resulting from a ‘criminal’ act--are directly in conflict.”29 The
court found that it was “unclear from the contract which provision
trumps,” giving rise to an ambiguity requiring the court to adopt
“the interpretation that provides coverage.”30
In reaching this conclusion, the Manis court relied on the
reasoning of the Sixth Circuit in North Bank v. Cincinnati
Insurance Companies. In North Bank, the Sixth Circuit held that an
insurance policy was ambiguous when it provided coverage for
occurrences which “unexpectedly or unintentionally” caused
“personal injury,” and defined personal injury to encompass “a
number of torts which are inherently intentional,” including
discrimination.31 Calling this a “studied ambiguity,” the court
observed that “[i]n selling the policies, the insurance company
uses these conflicting provisions to ‘create the impression that
the policy provides coverage for an employer’s intentional
employment discrimination,’” only to deny coverage when an actual
29 Id. at *5.
30 Id. 31 125 F.3d 983, 986 (6th Cir. 1997) (internal quotation marks omitted).
14 claim is made.32 Noting that other courts reviewing similar policy
language had “concluded that the provisions of the policies are
internally inconsistent because they appear to provide coverage for
‘unintentional’ ‘intentional’ torts,” the court concluded that the
“ambiguity in the policy must be resolved in favor of the
insured.”33
Louisiana state courts have not addressed whether an insurance
policy that provides coverage for discrimination while excluding
coverage for intentional acts is ambiguous. Louisiana courts have
held that, “subject to the rules of insurance contract
interpretation, insurance companies have the right to limit
coverage in any manner they desire, so long as the limitations do
not conflict with statutory provisions or public policy.”34
Consistent with this approach, Louisiana courts have found
insurance policies to be ambiguous when they declare in one clause
that a particular coverage exists, while declaring in another that
32 Id. at 987 (quoting Sean W. Gallagher, The Public Policy Exclusion and Insurance for Intentional Employment Discrimination, 92 MICH. L. REV. 1256, 1296 n.173 (1994)). 33 Id. at 986-87. 34 Edwards v. Daugherty, 883 So. 2d 932, 947 (La. 2004); see also Marcus v. Hanover Ins. Co., 740 So. 2d 603, 606 (La. 1999) (“Absent a conflict with statutory provision or public policy, insurers are entitled to limit their liability and to impose reasonable conditions upon the obligations they contractually assume.”); accord Reynolds v. Select Props. Ltd., 634 So. 2d 1180, 1183 (La. 1994).
15 such coverage is excluded.35 However, Louisiana courts have given
effect to unambiguous exclusions that cut back, but do not
eliminate, particular grants of coverage for intentional acts.36
We are persuaded that the exclusion for intentional acts in
the School Board’s policy does not conflict with the policy’s
coverage for racial discrimination and racial harassment. It is
well settled that claims for racial discrimination may allege
either “intentional” or “unintentional” acts. Specifically, “[i]n
the context of Title VII litigation, we recognize two types of
discrimination claims: disparate treatment and disparate impact.”37
“Disparate treatment refers to deliberate discrimination in the
terms or conditions of employment,” whereas disparate impact claims
35 See McIntosh v. McElveen, 893 So. 2d 986, 991-92 (La. Ct. App. 2005); Cugini Ltd. v. Argonaut Great Cent. Ins. Co., 889 So. 2d 1104, 1113 (La. Ct. App. 2004) (conflict between coverage provisions and exclusions gives rise to ambiguity which must be resolved in favor of coverage); Gottsegen v. Hart Prop. Mgmt. Inc., 820 So. 2d 1138, 1142 (La. Ct. App. 2002) (finding that when “a conflict exists between the declared coverage that was negotiated and paid for and the exclusion that states that same hazard is not covered,” an ambiguity exists that must be interpreted in favor of coverage); Domingue v. Rodrigue, 686 So. 2d 132, 137 (La. Ct. App. 1996) (“[A]n insurance policy cannot in one clause declare that there is coverage . . . and in another clause declare that there is no coverage . . . .”); Korossy v. Sunrise Homes, Inc., 653 So. 2d 1215, 1229 (La. Ct. App. 1995) (conflict between exclusion and narrowed coverage provision which eliminated coverage created an ambiguity to be construed against the drafter in favor of coverage). 36 See Stein v. Martin, 709 So. 2d 1041 (La. Ct. App. 1998) (finding policy unambiguous and not contradictory when it provided coverage for sexual misconduct but excluded coverage for any person who personally participated in an act of sexual misconduct); Michelet v. Scheuring Sec. Servs. Inc., 680 So. 2d 140, 147- 48 (La. Ct. App. 1996) (finding policy unambiguous when it extended coverage for battery, but excluded coverage for criminal conduct or conduct that violated a penal statute); see also Motorola, Inc. v. Associated Indem. Corp., 878 So. 2d 824, 829 (La. Ct. App. 2004) (“[A] court should not strain to find ambiguity in a policy where none exists.”). 37 Munoz v. Orr, 200 F.3d 291, 299 (5th Cir. 2000).
16 “do not require proof of intent to discriminate.”38 As written, the
policy can readily be interpreted to extend coverage for claims
alleging disparate impact discrimination while excluding coverage
for disparate treatment discrimination.
A similar result was reached by the Seventh Circuit in Solo
Cup Co. v. Federal Insurance Co.39 In Solo Cup, an insured sued its
insurer seeking to enforce its insurer’s indemnity and defense
obligations with respect to a Title VII claim for sexual
discrimination. The policy provided coverage for loss sustained as
a result of an “occurrence,” which it defined as “an accident or
happening or event or a continuous or repeated exposure to
conditions which unexpectedly and unintentionally results in
personal injury.”40 The policy defined “personal injury” to include
“discrimination” and “humiliation.”41 The court held that the
insurer had no duty to defend or indemnify its insured against
Title VII claims grounded on allegations of disparate treatment
discrimination because such claims necessarily involved a
determination that the insured “acted with a discriminatory motive
38 Id. (emphasis added); see E.E.O.C. v. J.M. Huber Corp., 927 F.2d 1322, 1328 n.24 (5th Cir. 1991) (“[U]nder an impact theory, the employee need not prove intentional discrimination, but need only show that a certain employment policy has a disparate impact on a protected group.” (citing Griggs v. Duke Power Co., 401 U.S. 424, 430 n.6 (1971)). 39 619 F.2d 1178 (7th Cir. 1980). 40 Id. at 1181. 41 Id. at 1182.
17 or purpose.”42 However, the court held that the insurer was
obligated to defend and indemnify its insured against claims
alleging disparate impact discrimination because such claims
require no proof of discriminatory motive.
While acknowledging the existence of disparate impact claims,
the School Board argues that a conflict cannot be averted between
the policy’s exclusion for intentional acts and its provision of
coverage for racial harassment. This argument fails to account for
the fact that employers such as the School Board are often held
directly liable under Title VII for negligently failing to take
prompt and immediate remedial action with respect to a hostile work
environment created by, inter alia, racial harassment.43
In short, while the policy’s exclusion for intentional acts
cabins the scope of the policy’s coverage, it does not render the
policy’s discrimination and harassment provisions wholly
ineffective. Furthermore, it does not give rise to an absurd
42 Id. at 1186. 43 See Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 759 (1998) (“[A]lthough a supervisor’s sexual harassment is outside the scope of employment because the conduct was for personal motives, an employer can be liable, nonetheless, where its own negligence is a cause of the harassment.”); id. (“Negligence sets a minimum standard for employer liability under Title VII . . . .”); Celestine v. Petroleos de Venezuella SA, 266 F.3d 343, 353 (5th Cir. 2001) (“A prima facie case of racial harassment alleging hostile work environment normally consists of five elements: . . . (5) the employer knew or should have known of the harassment in question and failed to take prompt remedial action.” (emphasis added)); Sharp v. City of Houston, 164 F.3d 923, 929 (5th Cir. 1999) (“An employer may be liable for sexual harassment if it ‘knew or should have known of the harassment in question and failed to take prompt remedial action.’” (quoting Williamson v. City of Houston, 148 F.3d 462, 464 (5th Cir. 1999))).
18 outcome whereby the policy completely takes back with one hand what
it gives with the other. Consequently, we conclude that no
intractable or irreconcilable conflict exists between the policy’s
coverage of racial discrimination and harassment and its
exclusions.44
The School Board also argues that regardless of whether the
policy is ambiguous, it must be interpreted in a manner consistent
with the reasonable expectations of a typical purchaser of
insurance. The Board contends that no purchaser of insurance would
44 Our interpretation of the policy is buttressed by the apparent existence in Louisiana law of a public policy prohibiting a person from insuring against his own intentional acts. See First Mercury Syndicate, Inc. v. New Orleans Private Patrol Serv., Inc., 600 So. 2d 898, 902 (La. Ct. App. 1992) (finding that “it would violate public policy to allow indemnification for such wrongdoing on the part of the insured” when insured corporate officers paid themselves excessive compensation for no work, placed family members on the corporate payroll when such members were not working, raided corporate funds for personal use, and enacted a resolution indemnifying themselves against their own wrongful acts.); Williams v. Diggs, 593 So. 2d 385, 387 (La. Ct. App. 1991) (“[W]hen considering an intentional injury exclusion in an automobile liability policy, another well-established public policy must also be given consideration. This is the policy against allowing a person to insure himself against his own intentional acts causing injury to others.”); Leon Lowe & Sons, Inc. v. Great Am. Surplus Lines Ins. Co., 572 So. 2d 206, 210 (La. Ct. App. 1990) (“Public policy forbids a person from insuring against his own intentional acts, but does not forbid him from insuring against the intentional acts of another for which he may be vicariously liable.”); Vallier v. Oilfield Constr. Co., 483 So. 2d 212, 218 (La. Ct. App. 1986) (“It is a longstanding principle of public policy that no person can insure against his own intentional acts.” (citing Baltzar v. Williams, 254 So. 2d 470, 472 (La. Ct. App. 1971)); Swindle v. Haughton Wood Co., 458 So. 2d 992, 995 (La. Ct. App. 1984) (“No person can insure against his own intentional acts. Public policy forbids it. But public policy does not forbid one to insure against the intentional acts of another for which he may be vicariously liable.” (quoting McBride v. Lyles, 303 So. 2d 795, 799 (La. Ct. App. 1974) (citations omitted)); see also Creech v. Aetna Cas. & Sur. Co., 516 So. 2d 1168, 1172 (La. Ct. App. 1988) (noting that “[t]he provisions of the insurance policy should be given effect except to the extent they conflict with law or public policy,” and holding that public policy does not preclude coverage of exemplary damage awards). This public policy constitutes an additional aid to construction indicating that the policy’s coverage provisions and exclusions are not locked in irremediable conflict. See 7 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 101:22 (3d ed. 1995) (noting that public policy may be resorted to as an “aid to construction”).
19 engage in the “semantic hair splitting” necessary to reconcile the
policy’s coverage of discrimination with its exclusion for
intentional acts. Rather, a purchaser would believe that the
policy covers acts of discrimination regardless of whether intent
comprised a necessary part of a cause of action based on such acts.
In essence, the Board asks that we re-write the terms of the
insurance policy to conform with the reasonable expectations of a
typical purchaser of insurance. This step is foreclosed by
Louisiana law, which precludes use of the reasonable expectations
doctrine to recast policy language when such language is clear and
unambiguous.45 Because the language of the policy at issue here is
unambiguous, we cannot impose an alternative meaning on the policy
by way of interpretation.
In sum, we can find no basis for interpreting the policy to
extend coverage for loss caused by acts of racial discrimination
and harassment committed with knowledge of their wrongful nature or
intent to cause damage. Accordingly, Mid-Continent has no duty to
defend or indemnify the School Board against Coleman’s claims for
intentional racial discrimination under 42 U.S.C. §§ 1981 and 1983.
In addition, because Coleman has not alleged facts supporting a
claim for disparate impact discrimination or any other
discrimination claim not required proof of intent, Mid-Continent
has no duty to defend or indemnify the School Board against
45 See La. Ins. Guar. Ass’n., 630 So. 2d at 763; Mayo, 869 So. 2d at 99- 100; Reynolds, 634 So. 2d at 1183.
20 Coleman’s Title VII claim. The district court did not err in so
holding.
B
We turn next to the question of whether Coleman’s complaint
contained allegations of non-intentional conduct sufficient to
trigger Mid-Continent’s duty to defend. Under Louisiana law, “the
scope of the duty to defend under an insurance agreement is broader
than the scope of the duty to provide coverage.”46 “The insurer’s
duty to defend is determined solely from the plaintiff’s pleadings
and the policy, without consideration of extraneous evidence.”47
“If ‘there are any facts in the complaint which, if taken as true,
support a claim for which coverage is not unambiguously excluded,’
the insurer must defend the insured.”48 “[O]nce a complaint states
one claim within the policy’s coverage, the insurer has a duty to
accept defense of the entire lawsuit, even though other claims in
46 Suire v. Lafayette City-Parish Consol. Gov’t, ---So. 2d----, 2005 WL 832362, at **18 (La. April 12, 2005); see Lamar Adver. Co. v. Cont’l Cas. Co., 396 F.3d 654, 660 (5th Cir. 2005); Selective Ins. Co. of S.E. v. J.B. Mouton & Sons, Inc., 954 F.2d 1075, 1077 (5th Cir. 1992). 47 Selective Ins. Co. of S.E., 954 F.2d at 1078. 48 Lamar Adver. Co., 396 F.3d at 660 (quoting Complaint of Stone Petroleum Corp., 961 F.2d 90, 91 (5th Cir. 1992)); see Jensen v. Snellings, 841 F.2d 600, 612 (5th Cir. 1988) (“Where the pleadings, taken as true, allege both coverage under the policy and liability of the insured, the insurer is obligated to defend, regardless of the outcome of the suit or the eventual determination of actual coverage.”); Suire, 2005 WL 832362, at **18 (“Unless unambiguous exclusion of all the plaintiff’s claims is shown, the duty to defend arises.”).
21 the complaint fall outside of the policy’s coverage.”49
Furthermore, “allegations in the complaint are liberally
interpreted to determine whether they establish the insurer’s duty
to defend.”50 We look only to the factual allegations in the
complaint, however; “statements of conclusions in the complaint
that are unsupported by factual allegations will not trigger a duty
to defend.”51
In her complaint, Coleman alleged that she was hired to serve
as associate principal at Rayville Elementary as part of a
political agreement between white and black members of the School
Board. She alleged that after the bond issue passed, she was asked
to resign by the superintendent of the School Board. She alleged
that after she refused this request, she was “subjected to
disparate enforcement of the Board’s rules and regulations and
written-up continuously for infractions she had not committed.”
Further, she alleged that she was purportedly terminated by the
Board for “cause,” but that this termination decision occurred
“without the consent and approval of several African-American Board
49 Montgomery Elevator Co. v. Bldg. Eng’g Servs. Co., 730 F.2d 377, 382 (5th Cir. 1984) (internal quotation marks omitted) (citing Am. Auto. Ass’n v. Globe Indem. Co., 362 So. 2d 1206, 1209 (La. Ct. App. 1978)). 50 Jensen, 841 F.2d at 612; see Lamar Adver. Co., 396 F.3d at 660 (“In making [the duty to defend] determination, this Court must liberally interpret the complaint.”). 51 Jensen, 841 F.2d at 612 (citing Guidry v. Zeringue, 379 So. 2d 813, 816 (La. Ct. App. 1980)); see Yarbrough v. Fed. Land Bank of Jackson, 731 So. 2d 482, 489 (La. Ct. App. 1999) (“It is well settled that the allegations of fact, and not conclusions, contained in the petition determine the obligation to defend.”).
22 members who were not in favor of terminating” her contract.
Based on these facts, Coleman asserted, inter alia, a claim
for abuse of rights alleging that the “School Board acted in the
absence of a serious and legitimate interest that is worthy of
judicial protection; alternatively, acted in violation of moral
rules, good faith, or elementary fairness; in the further
alternative, exercised a right for a purpose other than that for
which it was granted.” The Louisiana Supreme Court has described
the abuse of rights doctrine in the following terms:
In its origin, the abuse of rights doctrine was applied to prevent the holder of rights or powers from exercising those rights exclusively for the purpose of harming another, but today most courts in civil law jurisdictions will find an act abusive if the predominant motive for it was to cause harm. . . . The doctrine has been applied where an intent to harm was not proven, if it was shown that there was no serious and legitimate interest in the exercise of the right worthy of judicial protection. Protection or enforcement of a right has been denied when the exercise of the right is against moral rules, good faith or elementary fairness. Another criteria, espoused originally by the French scholar Louis Josserand, would require an examination of the purpose for which the right was granted. If the holder of the right exercised the right for a purpose other than that for which the right was granted, then he may have abused the right.52
Louisiana courts will apply the abuse of rights doctrine only when
one of four conditions is met:
(1) the exercise of rights exclusively for the purpose of harming another or with the predominant motive to cause harm;
(2) the non-existence of a serious and legitimate
52 Ill. Cent. Gulf R.R. Co. v. Int’l Harvester Co., 368 So. 2d 1009, 1014 (La. 1979) (citations omitted).
23 interest that is worthy of judicial protection;
(3) the use of the right in violation of moral rules, good faith or elementary fairness; or
(4) the exercise of the right for a purpose other than that for which it was granted.53
Courts will find an abuse of rights “only in limited circumstances
because its application renders unenforceable one’s otherwise
judicially protected rights.”54
The School Board’s policy provides coverage for loss resulting
from claims based on wrongful acts, and defines “wrongful act” to
mean “any actual or alleged act, error, omission, misstatement,
misleading statement, neglect or breach of duty . . . including but
not limited to” a variety of specifically enumerated acts. This
broad provision is sufficient to provide coverage for Coleman’s
claim that the School Board abused her rights when it voted to
terminate her employment.
Mid-Continent argues that coverage for Coleman’s abuse of
rights claim is clearly precluded by the policy’s exclusion for
acts done with knowledge of their wrongful nature or with intent to
cause harm. Mid-Continent contends that although a claim for abuse
of rights may be established without proving intent to cause harm,
the facts pleaded by Coleman in support of her abuse of rights
claim allege only intentional conduct. Accordingly, Mid-Continent
53 Oliver v. Cent. Bank, 658 So. 2d 1316, 1321 (La. Ct. App. 1995); see Truschinger v. Pak, 513 So. 2d 1151, 1154 (La. 1987). 54 Truschinger, 513 So. 2d at 1154.
24 asserts that Coleman’s claim as pleaded in her complaint is clearly
excluded from coverage under the terms of the policy.
Interpreting Coleman’s complaint liberally, we find that she
alleged facts which, if true, would support a finding of liability
under an abuse of rights theory without requiring proof of intent
to cause harm. Specifically, if Coleman were unable to prove that
the School Board terminated her on account of her race, she would
have the option of proving that the Board “acted in the absence of
a serious and legitimate interest that is worthy of judicial
protection.” Coleman explicitly alleged that, following her
meeting with the Board Superintendent at which he asked her to
resign, she was subjected to disparate enforcement of the Board’s
rules and written-up for infractions that she did not commit.
Implicit in this allegation is the assertion that Coleman did not
commit an infraction for which she could be rightfully terminated
under her contract of employment. Based on this assertion, a jury
could hold the School Board liable for abusing Coleman’s rights
under her employment contract by firing her without cause, while
simultaneously holding that the Board’s actions were not actuated
by intentional racial discrimination.
Coleman’s factual allegations could also support a garden-
variety breach of contract claim. Although Coleman asserts a
breach of contract cause of action in her complain, Mid-Continent
argues that this claim is not covered because it is premised on
25 actions taken by the School Board in “bad faith.” Mid-Continent
notes that, under Louisiana law, a claim for bad faith breach of
contract requires a showing of “an intentional and malicious
failure to perform.”55 The School Board concedes that a claim for
bad faith breach of contract is not covered under the policy. When
determining whether an insurer has a duty to defend, however, we
look to the facts pleaded in the plaintiff’s complaint. Coleman
alleged that she was terminated after being written-up for
infractions that she did not commit. Even if a jury were to
disbelieve Coleman’s claims of intentional racial discrimination,
it could still find that the School Board breached her employment
agreement by terminating her without cause. To this effect, the
policy explicitly provides coverage for “actual or alleged
interference with or breach of any employment contract whether
oral, written, express or implied.”
Accordingly, we hold that Mid-Continent had a duty to defend
the School Board against Coleman’s lawsuit. Under Louisiana law,
an insurer that breaches its duty to defend its insured is “liable
in damages for attorney fees and costs the insured incurs in
defending the suit.”56 We remand for a determination of these
55 LA. CIV. CODE ANN. art. 1997, cmt. c (West 1987). 56 Bossier Plaza Assocs. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 813 So. 2d 1114, 1119 (La. App. 2d Cir. 2002); see Smith v. Reliance Ins. Co. of Ill., 807 So. 2d 1010, 1022 (La. Ct. App. 2002) (“Louisiana law is well settled that an insurer’s failure to defend the insured on plaintiffs’ allegations renders the insured liable for attorney’s fees incurred by the insured . . . .” (citing Steptore v. Masco Const. Co., Inc., 643 So. 2d 1213, 1218 (La. 1994))).
26 amounts. In addition, to the extent that the School Board seeks
indemnity from Mid-Continent for the amount of its settlement with
Coleman, we remand for a determination of whether the Board has
demonstrated potential liability with respect to Coleman’s covered
claims,57 and the amount of the settlement allocable to such
claims.58
IV
With respect to its holding that the policy of insurance
issued by Mid-Continent to the School Board does not cover acts of
racial discrimination committed with actual knowledge of their
wrongful nature or with intent to cause harm, the judgment of the
district court is affirmed. However, with respect to its holding
that Mid-Continent had no duty to defend the School Board, the
judgment of the district court is reversed, and this case is
remanded for further proceedings consistent with this opinion.
AFFIRMED in part, REVERSED in part, and REMANDED.
57 See Sullivan v. Franicevich, 899 So. 2d 602, 609 (La. Ct. App. 2005); Vaughn v. Franklin, 785 So. 2d 79, 87 (La. Ct. App. 2001) (“As a general rule, one seeking indemnity must establish actual liability to recover. An exception to the rule is that the indemnitee need show only potential, rather than actual, liability on his part where the claim is based on a written contract, such as an insurance policy.” citation omitted)); Rovira v. LaGoDa, Inc., 551 So. 2d 790, 795 (La. Ct. App. 1989) (“Where a claim is based on a written contract of indemnity or insurance, the indemnitee must show potential, rather than actual, liability on his part in order to recover from the indemnitor.” (citing Terra Res., Inc. v. Lake Charles Dredging & Towing Inc., 695 F.2d 828 (5th Cir. 1983))). 58 It is premature for us to decide whether Louisiana law permits an insured to recover the entire balance of a settlement amount when coverage is potentially available for only a fraction of the claims alleged in the plaintiff’s complaint. We note, however that when applying Texas law we have held that coverage “cannot be created ex nihilo by estoppel.” See Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1493 (5th Cir. 1992) (Wisdom, J.).