Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-02754/USCOURTS-ca8-05-02754-0/pdf.json

Parties Involved:
Investors Insurance Company of America
Appellant
Missouri Public Entity Risk Management Fund
Appellee

Document Text:

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The Honorable Andrew W. Bogue, United States District Judge for the District

of South Dakota, sitting by designation. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 05-2754

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Missouri Public Entity Risk

Management Fund,

Appellee,

v.

Investors Insurance Company of

America,

Appellant.

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Appeal from the United States

District Court for the

Western District of Missouri. 

 [PUBLISHED]

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Submitted: January 13, 2006

 Filed: June 28, 2006

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Before SMITH and HANSEN, Circuit Judges, and BOGUE,1

 District Judge.

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HANSEN, Circuit Judge.

This diversity-based declaratory judgment case involves a dispute over the

interpretation of an excess insurance policy issued by Investors Insurance Company

of America ("Investors") to the Missouri Public Entity Risk Management Fund

("MOPERM"). There is no dispute that Missouri law governs the interpretation and

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The Honorable Nanette K. Laughrey, United States District Judge for the

Western District of Missouri.

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application of the insurance contract at issue. The district court2 granted summary

judgment to MOPERM, concluding that excess insurance coverage exists under the

policy, and Investors appeals. 

MOPERM is a statutorily-created corporate body that provides liability

insurance coverage for Missouri public officials, cities, counties, and various other

public entities. MOPERM purchased an excess insurance policy from Investors to

cover claims exceeding $900,000 for a single incident or exceeding $6,000,000 for the

annual aggregate of all claims. The policy states that Investors "will pay those sums

that the Insured becomes legally obligated to pay as damages because of 'wrongful

acts' to which this coverage applies." (Appellant's App. at 48.) The policy defines an

"Insured" as "Member Agencies of MOPERM and any elected or appointed official

of the Member Agency . . . while acting within the course and scope of duties." (Id.

at 51.) As relevant here, the excess policy provides coverage for wrongful acts of a

county or an official acting within the scope of the official's duties. The policy defines

a "wrongful act" as including "any alleged or actual act, error or omission, or breach

of duty, or violation of any federal, state or local civil rights, by a[n] Insured while

acting within the scope of his/her duties as a public official." (Id. at 53.) The policy

was later modified to add Endorsement No. 19, which expressly provides "coverage

for discrimination prohibited by law." (Id. at 85.) 

MOPERM filed this declaratory judgment action, seeking a determination of

liability under the excess insurance policy with regard to four unrelated employment

discrimination claims that it had either settled or lost at trial but for which Investors

had denied coverage under the excess insurance policy. MOPERM alleged it was

entitled to indemnification for the claims under Endorsement 19 of the policy because

the claims all involved "discrimination prohibited by law." While the district court

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found coverage for all four claims, only one of these claims is at issue in this

appeal–that of Darlene Hellerich against Jerome Biggs and Andrew County, Missouri

("the Hellerich claim"). 

The allegations of the Hellerich claim are these: Darlene Hellerich worked for

Jerome Biggs, a lawyer who had a private practice and served as the Andrew County

prosecuting attorney. Hellerich worked as an assistant in the private law firm and was

also a county employee, serving as clerk for the prosecutor's office. In the office and

during work time, Biggs engaged in outrageously offensive and discriminatory

conduct toward Hellerich. Also, Hellerich alleged that a custodian for the county,

Gary Reed, engaged in inappropriate touching of Hellerich's breasts on more than one

occasion and joined in Biggs's harassing and discriminatory banter as well. Hellerich

finally felt forced to resign due to their conduct toward her. 

Hellerich filed suit against Biggs in state court, alleging intentional and

negligent infliction of emotional distress on the basis of Biggs's conduct in the

workplace. She also filed charges of discrimination with the Missouri Human Rights

Commission and the Equal Employment Opportunity Commission ("EEOC") against

Andrew County (her employer) and Biggs (her immediate supervisor), alleging sexual

harassment and a hostile environment at work due to the conduct of Biggs and Reed.

In the EEOC charge, Hellerich further asserted that during her employment with the

county, there was no established procedure for registering discrimination complaints,

nor was there an existing antisexual harassment policy in effect governing county

employees. 

MOPERM settled the Hellerich claim in its entirety. In exchange for the

settlement proceeds, Hellerich dismissed the pending state court lawsuit against Biggs,

withdrew the EEOC charges of discrimination against Biggs and the county, and

relinquished her right to sue on the administrative charges. Andrew County agreed

to maintain thereafter an antiharassment policy and to provide appropriate training on

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harassment issues to all county employees. The Hellerich settlement did not exceed

the single claim floor of MOPERM's policy with Investors, but it caused MOPERM's

annual aggregate claims to exceed $6,000,000, triggering coverage on the excess

insurance policy. Thus, MOPERM sought indemnification from Investors. Investors

disputed the claim on several grounds. The district court granted summary judgment

to MOPERM, concluding that excess coverage existed for this claim under the

language of the policy and Missouri law. 

We review de novo both the district court's grant of summary judgment, see

Baum v. Helget Gas Prods., Inc., 440 F.3d 1019, 1021 (8th Cir. 2006), and the district

court's interpretation of state law, Salve Regina Coll. v. Russell, 499 U.S. 225, 231

(1991); Myers v. Richland County, 429 F.3d 740, 749 (8th Cir. 2005). Under

Missouri law, "[a]n insured must bring itself within the terms of the policy and must

carry the burden of offering substantial evidence that the underlying claim is covered

by the policy." Trans World Airlines, Inc. v. Associated Aviation Underwriters, 58

S.W.3d 609, 618-19 (Mo. Ct. App. 2001) (internal marks omitted). "The courts are

to enforce insurance contracts as written unless an ambiguity requires the court to

impose various rules of interpretation." Hunt v. Everett, 181 S.W.3d 248, 250 (Mo.

Ct. App. 2006). "[W]e construe ambiguous provisions in an insurance policy against

the insurer." Id. The court, however, "will not distort unambiguous policy language

to create an ambiguity." Haulers Ins. Co. v. Wyatt, 170 S.W.3d 541, 546 (Mo. Ct.

App. 2005). We give effect to the intent of the parties as expressed in the contract

"unless to do so would violate public policy." E. Attucks Cmty. Housing, Inc v. Old

Republic Sur. Co., 114 S.W.3d 311, 319 (Mo. Ct. App. 2003). Additionally, if "an

insured risk and an excluded risk constitute concurrent proximate causes [for a loss],

a liability insurer is liable so long as one of the causes is covered by the policy."

Centermark Props., Inc. v. Home Indem. Co., 897 S.W.2d 98, 101 (Mo. Ct. App.

1995) (internal marks omitted). 

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On appeal, Investors first argues that there is no coverage for the Hellerich

claim because it did not involve "wrongful acts" by an "insured" within the meaning

of the policy. Investors points to policy language that an "insured" is an official acting

within the scope of his duties as a public official and that "wrongful acts" are only acts

by an insured who is acting within the scope of those official duties. Investors asserts

that the alleged wrongful acts of intentional sexual harassment were not within the

scope of Biggs's official duties as county attorney, and thus they cannot serve as the

basis of the claim for excess insurance coverage. That argument misses the point.

The county is itself an insured as a member agency of MOPERM. (See Appellant's

App. at 51.) For the reasons that follow, the county's own failure to act deprives it of

its defense to vicarious liability under federal law for the hostile environment Biggs

allegedly created. That liability then serves as an independent basis for coverage

under the language of the excess insurance policy that covers discrimination

prohibited by law. 

"The general rule is that sexual harassment by a supervisor is not conduct

within the scope of employment[]" for purposes of determining an employer's agency

liability for the acts of its employees. Burlington Indus., Inc. v. Ellerth, 524 U.S. 742,

757 (1998). However, conduct that is within the "[s]cope of employment does not

define the only basis for employer liability under agency principles," id. at 758, and

as noted, the insurance policy at issue covers not only "wrongful acts" within the

scope of an official's duties but also "discrimination prohibited by law." (Appellant's

App. at 85.) An employer may be vicariously liable for intentional acts of

discrimination committed by an employee where "the employee was aided in

accomplishing the tort by the existence of the agency relation." Id. at 759 (internal

marks omitted). For the agency relation to have aided in accomplishing the tort, there

must be "something more than the employment relation itself." Id. at 760. Thus, the

Court established the following rule: 

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An employer is subject to vicarious liability to a victimized employee for

an actionable hostile environment created by a supervisor with

immediate (or successively higher) authority over the employee. When

no tangible employment action is taken, a defending employer may raise

an affirmative defense to liability or damages . . . [which is comprised

of] two necessary elements: (a) that the employer exercised reasonable

care to prevent and correct promptly any sexually harassing behavior,

and (b) that the plaintiff employee unreasonably failed to take advantage

of any preventive or corrective opportunities provided by the employer

or to avoid harm otherwise.

Id. at 765; Faragher v. Boca Raton, 524 U.S. 775, 807 (1998). 

The state court petition and the EEOC charges assert that all of Biggs's

offending conduct occurred in the workplace, during work hours, while he was

functioning in his official capacity as county prosecutor and as Hellerich's supervisor.

Not only did Biggs allegedly harass and demean Hellerich himself, he allegedly

condoned, encouraged, and joined in Reed's harassment of Hellerich as well.

Hellerich's administrative charge against the county asserts that the county had no

antiharassment policy and no established complaint procedure in place to offer

protection to a county employee placed in this type of situation by a supervisor, and

none is independently shown by the other evidence in the record before us. The

settlement proceeds were paid in exchange for Hellerich's agreement to dismiss both

the state lawsuit against Biggs personally and the EEOC charges against the county,

which grew out of Biggs's misbehavior. 

Because the insurance policy covers not only wrongful acts within the scope of

an official's duties but also discrimination prohibited by law, the fact that Biggs's

alleged conduct was not within the scope of his duties does not preclude coverage for

the county. The county's own failure to protect employees by not providing a

preventive antiharassment policy, adequate training, or a complaint procedure renders

it unable to defend against its vicarious liability for Biggs's prohibited discriminatory

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supervisory misconduct in the workplace. Investors even admits in its brief that this

policy language could be construed to provide coverage "where the basis for the

insured's liability is because of purely vicarious liability." (Appellant's Br. at 28 n.60.)

The district court correctly concluded that the excess coverage applied in light of the

administrative charges against the county. See Centermark Props., Inc., 897 S.W.2d

at 101 (holding that coverage exists under a liability policy as long as at least one

insured risk is a cause of the loss). 

Investors also argues that it is against Missouri public policy to allow a person

to insure against his or her own intentional unlawful conduct. See E. Attucks Cmty.

Housing, Inc., 114 S.W.3d at 319 (stating that the court "agree[s] with the trial court

that in Missouri, it is against public policy to allow one to insure against one's own

thefts, dishonest acts or intentionally inflicted damage"). However, Investors points

to no clear public policy in Missouri that prevents a public entity from insuring itself

against intentional acts of employment discrimination by supervising employees or

the county's own purely vicarious liability. In fact, Missouri has held in an analogous

context that it is not "against public policy to permit an association of law enforcement

officers to insure themselves against alleged willful and intentional acts." Colson v.

Lloyd's of London, 435 S.W.2d 42, 47 (Mo. Ct. App. 1968). Also, in considering an

insurance policy that expressly covered an insured's intentional acts, our court has

anticipated that the Missouri Supreme Court would not prohibit insurance coverage

for civil rights violations on the basis of public policy. New Madrid County

Reorganized Sch. Dist. No. 1 v. Cont’l Cas. Co., 904 F.2d 1236, 1242-43 (8th Cir.

1990) (involving a § 1983 claim by teachers against a school district regarding the

teachers' First Amendment rights). We see no reason to differentiate that holding, or

the holding of Colson, from the public employee employment discrimination context

at issue in this case. The excess insurance policy at issue does not violate Missouri

public policy. 

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Accordingly, the judgment of the district court is affirmed. 

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